ASML Holding (ASML) Could Be 56% Above Fair Value On A Rich Valuation

Recent share performance and what it might signal for ASML Holding

ASML Holding (ASML) has attracted attention after a period of mixed share performance, with the stock up 2.1% over the past week but down about 3.1% over the past month.

Over the past 3 months the stock shows a gain of roughly 11.2%, while the year to date move sits near 49.6%. The latest close of $1,740.99 places ASML Holding among the larger semiconductor equipment companies by market value.

See our latest analysis for ASML Holding.

For ASML Holding, the recent 1-day share price return of 2.15% and 7-day share price return of 6.87% sit against a 30-day share price return that is down 3.13%. At the same time, the year-to-date share price return of 49.6% and 1-year total shareholder return of 142.38% point to strong momentum that has been building over a longer stretch.

If you are looking beyond ASML Holding for other chip related ideas, this could be a useful moment to scan the market for 55 AI infrastructure stocks

The strong longer term gains in ASML Holding sit alongside a softer recent month, which raises a simple question. Are you looking at a share price that mainly tracks business progress, or one leaning more on sentiment driven enthusiasm as valuation comes into focus next?

Price-to-Earnings of 54.1x: Is it justified?

For ASML Holding, the current share price of $1,740.99 reflects a P/E of 54.1x, which points to a rich valuation compared with several reference points.

The P/E ratio compares the company’s share price to its earnings per share. For a large semiconductor equipment company like ASML Holding, investors often look at this measure to gauge how much the market is willing to pay today for each unit of current earnings, particularly when growth expectations are part of the story.

ASML is described as expensive compared with an estimated fair P/E of 41.8x, a peer group average of 52.3x, and the wider US semiconductor industry average of 52.6x. That places the current valuation above the levels suggested by these comparison anchors. This points to the market attaching a premium to the stock versus both peers and a modeled fair ratio level.

Explore the SWS fair ratio for ASML Holding

Result: Price-to-Earnings of 54.1x (OVERVALUED)

However, ASML Holding still faces risks such as potential shifts in chipmaker capital spending and changes in regional demand, especially across China, Taiwan and South Korea.

Find out about the key risks to this ASML Holding narrative.

Another view on ASML Holding’s valuation

The earlier P/E discussion paints ASML Holding as expensive on earnings, and the SWS DCF model points in the same direction. With an estimated future cash flow value of $1,117.35 against a share price of $1,740.99, the stock screens as overvalued using cash flows as well. That raises a simple question for you: Is this premium mainly about long term confidence in ASML Holding, or has price started to move ahead of fundamentals?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out ASML Holding for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 51 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With sentiment leaning cautious on valuation for ASML Holding, it helps to test the story against the underlying data yourself and move quickly if needed. To see what is driving optimism and the rewards already identified for this stock, review the 2 key rewards

Looking for more investment ideas beyond ASML Holding?

If ASML Holding has your attention but you want more options, use the Simply Wall St screener to quickly spot other stocks that may fit your approach.

• Target resilient opportunities that aim to balance risk and return by scanning 79 resilient stocks with low risk scores tailored to steadier profiles.
• Hunt for stocks that combine quality with attractive pricing by reviewing the 51 high quality undervalued stocks before prices potentially reset.
• Uncover lesser known companies with solid fundamentals through the screener containing 19 high quality undiscovered gems so you are not late to the story.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com