ASML HOLDING NV (NASDAQ:ASML): A Prime Example of Affordable Growth with Strong Fundamentals

Investors looking for growth opportunities at fair prices often consider the "Affordable Growth" strategy, which focuses on companies with strong growth potential and reasonable valuations. This method combines fundamental strength with price awareness, selecting stocks with growth ratings above 7, solid profitability and financial health, and valuation scores above 5. By applying these standards, the strategy helps find businesses likely to sustain earnings growth without overpaying.

ASML HOLDING NV (NASDAQ:ASML) is a strong example under this approach. The company, a top player in advanced semiconductor lithography systems, has shown steady financial results, making it a standout for growth at a fair price.

Growth: A Major Factor

ASML’s growth numbers are impressive, scoring 8 out of 10 in ChartMill’s Growth rating. The company has achieved:

• Consistent Past Growth: Over the last year, earnings per share (EPS) rose by 40.22%, and revenue grew by 26.41%. The five-year average EPS growth is 25.62%, well above industry standards.
• Future Potential: Analysts forecast annual EPS growth of 18.80% and yearly revenue growth of 11.29%. While slower than past rates, these figures still show a positive trend.
• Industry Position: ASML’s technology is essential for semiconductor production, giving it an edge in long-term demand from AI, data centers, and advanced computing.

Valuation: Fair for the Quality

Despite its strong position, ASML’s valuation stays reasonable, with a score of 5 out of 10:

• P/E Ratio: At 25.19, ASML is below the industry average of 43.80 and slightly under the S&P 500’s 28.04. Its forward P/E of 21.44 is also better than the broader market’s 37.64.
• Growth-Adjusted Measures: The PEG ratio indicates a fair valuation, and the company’s high profitability supports a slight premium.
• Enterprise Value/EBITDA: ASML trades lower than 68% of its semiconductor peers, showing relative affordability.

Profitability and Financial Health: A Solid Base

ASML’s fundamentals are further supported by strong profitability (9/10) and good financial health (7/10):

• High Margins: Operating margins of 34.90% and net margins of 29.31% are among the best in the industry.
• Strong Returns: Return on invested capital (ROIC) of 30.33% and return on equity (ROE) of 43.78% show efficient use of capital.
• Balance Sheet Stability: A low debt-to-equity ratio of 0.17 and an Altman-Z score of 7.45 suggest low bankruptcy risk. While liquidity ratios are below industry averages, ASML’s strong cash flow eases concerns.

Why These Metrics Fit Affordable Growth

The Affordable Growth strategy looks for companies with earnings growth and reasonable valuations—qualities that limit risk while offering upside. ASML fits this model by providing:

• Steady Growth: Its technological advantage and industry trends support ongoing expansion.
• Fair Pricing: Valuation multiples, though not low, are backed by strong profitability and growth outlook.
• Stability: High returns and controlled debt add resilience in uncertain markets.

For more details on ASML’s fundamentals, see the full analysis here.

Finding More Affordable Growth Options

ASML is one of many stocks meeting the Affordable Growth criteria. Investors can discover others by using the predefined Affordable Growth screen, which filters for similar fundamentals.

Disclaimer: This article is not investment advice. Always do your own research or consult a financial advisor before making investment decisions.