Key Takeaways:
- The 2-Minute Valuation Model values ASML stock at ~$1,143/share in 2 years.
- ASML is a wide-moat stock that appears to be undervalued, so it could be worth a further look.
- Get accurate financial data on over 100,000 global stocks for free on TIKR >>>
What is the 2-Minute Valuation Model?
There are 3 core factors that drive a stock’s long-term value:
- Revenue Growth: How big the business becomes.
- Margins: How much the business earns in profit.
- Multiple: How much investors are willing to pay for a business’s earnings.
The 2-Minute Valuation Model uses a simple formula to value stocks:
Expected Normalized EPS * Forward P/E ratio = Expected Share Price
Revenue growth and margins drive a company’s long-term normalized EPS, and investors can use a stock’s long-term average P/E multiple to get an idea of how the market values a company.
Why ASML Looks Undervalued
Forecast
On ASML’s Analyst Estimates tab shown below, you can see analysts expect ASML to grow revenue at a 13.6% compound annual growth rate over the next 3 years, with normalized EPS expected to grow at a 23.9% CAGR:
View ASML’s full analyst estimates >>>
For context, ASML’s revenue grew at an 18.9% CAGR over the past 5 years, while normalized EPS grew at a 25.4% CAGR. This means that ASML’s forecasted growth is expected to be slightly slower than historical growth but still pretty strong.
Valuation Multiple
ASML trades at around $650 per share, which means the stock trades around 7.7 times next year’s expected revenue (EV/Revenue) and 27.3 times next year’s expected earnings.
ASML has averaged a 31x forward P/E multiple over the past 10 years. This seems like a pretty reasonable multiple for the company to trade at going forward because the company is expected to see about the same level of growth going forward as it has in the past:
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We can use a 31x forward P/E multiple in our valuation.
Fair Value
3 years from now, ASML is expected to reach about $36.31 in normalized EPS. At a 31x NTM P/E multiple, that values ASML stock in 2 years at $1,126/share.
The NTM P/E multiple uses the next twelve months’ expected earnings, so a 2-year valuation uses 3-year EPS forecast figures.
We can also tack on an extra $17.56 to the fair value for the dividends that ASML is expected to pay over the next 2 years, which leaves us with a fair value of $1,143/share.
With the stock trading at about $650 today, this implies that if we bought ASML stock, we would get a 32.6% return per year over the next 2 years, or a 76% total return:
This admittedly sounds insane. However, the consensus analyst price target for $ASML is about $929/share, which means analysts also think the stock has some upside:
Key Assumptions/Risks:
All valuations are simply educated guesses on how the future will unfold, so there’s always an element of randomness in any valuation.
These are some of the key risks that might make this valuation turn out to be wrong:
Risks:
- Revenue Estimates: Analysts’ estimates might be a little aggressive. ASML’s stock dropped in October after management gave disappointing guidance for 2025, and analysts’ forward estimates could continue to fall.
- Chinese Export Controls: ASML might be subject to increasingly strict export controls with selling to China. This largely depends on the US government’s decisions, so it’s out of ASML’s hands. In the third quarter of 2024, ASML projected that China would account for about 20% of the company’s total revenue in 2025.
TIKR Takeaway
Based on the 2-Minute Valuation Model, it looks like ASML stock is undervalued today and could offer investors high annual returns.
Don’t take our word for it—try it out for yourself! Analyze ASML stock or any stock you’re interested in on TIKR today!
The TIKR Terminal offers industry-leading financial data on over 100,000 stocks and was built for investors who think of buying stocks as buying a piece of a business.
Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. We aim to provide informative and engaging analysis to help empower individuals to make their own investment decisions. Neither TIKR nor our authors hold positions in any of the stocks mentioned in this article. Thank you for reading, and happy investing!
