ASML Holdings N.V. (NASDAQ: ASML)
ASML Holding is one of the global leaders when it comes to semiconductor manufacturing equipment, and it's set to benefit from soaring chip demand over the long term despite recent setbacks. The company is also the sole producer of extreme ultraviolet (EUV) lithography systems, which are required to manufacture a specific kind of semiconductors. Having recently witnessed a sell-off, ASML has caught the eye of investors resulting in an increase in mentions by 100% over the last day, encouraging investors to wonder what gives the company such hype. Currently, shares for ASML trade at $442 USD.
ASML is a company that has almost always done well, featuring high growth and providing solid returns, here are some of the reasons you might want to consider taking a position in the company now.
One of the biggest reasons ASML has been spotted on the radar is that it now trades down roughly 43% year to date and 50% from the lifetime pricing high reached last September, which makes it the perfect time to purchase the stock.
Assuming $10 billion in earnings, the stock only trades at 18 times those projections today, which is yet another reason for the same, although it may not be a screaming bargain, the stock has not seen such lows in at least the last year.
ASML has seen huge demand for its less advanced deep ultraviolet technology (DUV) for lagging-edge chips in autos, industrial applications, and the Internet of Things, as those applications have gained ground in recent years.
In addition, the semiconductor industry is set to be growing at a 7% average annualized rate for the next nine years, reaching $1 trillion by 2030, up from about $590 billion in 2021 which benefits the company as it is a market leader.
ASML expects its top line to grow at an average rate of 11% between 2020 and 2030, which means revenue could approach $52.1 billion, which is nearly triple its revenue in 2021, by the end of the decade.
The company forecasts a 20% increase in revenue in 2022. It seems on track to hit that target, thanks to a massive order backlog that hit an all-time high of 29 billion euros in the first quarter of 2022 meaning shareholders could see an increase in returns very quickly.
ASML is also doing a great job at returning cash to shareholders, with lots of share repurchases and a dividend that yields about 1.5% today. It also expects the dividend yield to grow double-digits each year.
Finally, ASML's growth is cyclical but its gross margins have consistently expanded over the years as it has maintained its near-monopoly, exercised its pricing power, and sold a higher mix of higher-margin EUV systems.
Although there are lots of very good reasons to be picking ASML up now, no investment is perfect and here are some of the reasons ASML might not be.
As of recently, U.S. regulators are pressuring ASML to stop selling equipment to China, which is one the world’s largest semiconductor producers and one of ASML’s biggest markets. This could have a drastic impact on the company’s sales and revenues.
ASML's stock might also be weighed down by the gloomy expectations for the semiconductor sector this year overall due to macroeconomic conditions.
Given the threat of a looming recession, investors aren’t as enthusiastic about high-growth, high-priced stocks at the moment and ASML is not cheap.
With solid financials, optimistic predictions for both the company and the semiconductor industry as a whole and the recent fall in value, ASML seems like a great investment. However, there are still concerns over the immediate economic conditions that might cause the company to underperform expectations in the near future. However, this is short term and the future is hopeful.
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