ASML: ASML Holding: Buy, Sell or Hold?

Based in the Netherlands, ASML Holding N.V. (ASML) is uniquely positioned to gain from the rising demand for advanced semiconductor chips because of its holistic lithography metrology and its inspection product portfolio. The company sells its tools to leading global semiconductor fabricators, such as Intel Corporation (INTC) and Taiwan Semiconductor Manufacturing Company (TSM).

ASML’s stock price has more than tripled since hitting its 52-week low of $191.25. Based on a continued increase in demand for its products, the stock has rallied 44.9% over the past three months to close Friday’s trading session at $597.99 after hitting its 52-week high of $601.46.

We expect this momentum to continue through the remainder of this year and beyond based on the factors discussed here:

Huge Demand for Chips

Semiconductor chips play an important role in the technology revolution–from 5G development to an accelerating use of artificial intelligence (AI). The COVID-19 pandemic has led to a huge demand for electronics as the remote work and schooling trend has been embraced widely. These factors have led to a shortage of chips.

Because ASML plays an important role in enabling other companies to manufacture chips, it is uniquely positioned to gain from the booming demand for chips.

Dominant Player in the EUV Technology Space

ASML was founded in 1984. It shipped its first prototype Extreme Ultraviolet (EUV) lithography tool (NXE:3100) in 2010. The company has made several advancements in the EUV lithography space and its revenue has increased at a CAGR of 17.3% over the past five years. Also, ASML’s EBITDA and EPS grew at a CAGR of 16% and 21%, respectively, over the past three years.

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Impressive Recent Financials

ASML’s net sales have increased 5.4% year-over-year to €4.25 billion for the fourth quarter ended December 31, 2020. Its new lithography systems sales increased more than 28% sequentially to 73 units for the fourth quarter. On a year-over-year basis, its gross profit and net income increased 14% and 19.1%, respectively over the same period. Moreover, its EPS was reported at €3.23, representing an increase of more than 20% year-over-year.

Favorable Analyst Outlook

Analysts expect ASML’s revenue to increase 69% for the quarter ending March 31, 2020, 34.8% this year and more than 11% next year. Its EPS is expected to grow 43.4% this year, 17.3% next year and at a rate of 17.1% over the next five years.

POWR Ratings Show that Odds are in the ASML’s Favor

ASML has an overall rating of B, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with the weighting of each optimized to improve overall performance.

Our rating system also evaluates each stock based on eight different categories. The stock has a grade of A for Sentiment consistent with the analysts’ positive outlook for ASML.

The stock has a grade of B for Momentum, which is in sync with ASML’s impressive price performance. The stock has gained 59.5% over the past six months and 16.4% over the past month. The stock also has a grade of B for Quality given its impressive gross profit margin of 48.6%.

Click here to access ASML’s grades for Growth, Value and Stability as well.

Of the 96 stocks in the B-rated Semiconductor & Wireless Chip industry, ASML is ranked #42.

There are several other top-rated stocks in the same industry that you can access by clicking here.

Bottom Line

ASML has played a dominant role over the years thanks to its unique product portfolio. We think it is wise to add this stock to one’s portfolio now because we expect the company to thrive this year and beyond based on the factors discussed here.

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ASML shares were trading at $605.57 per share on Tuesday morning, up $7.58 (+1.27%). Year-to-date, ASML has gained 24.16%, versus a 5.15% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...