ASML Holding N.V. (ASML), a leading provider of advanced semiconductor equipment systems for chipmakers, reported mixed fiscal 2024 second-quarter results. The company’s net service and field option sales grew 14.3% from the prior year’s quarter to €1.48 billion ($1.62 billion). However, its total net sales declined 9.6% year-over-year to €6.24 billion ($6.82 billion).

During the second quarter, ASML sold 89 units of new lithography systems and 11 units of used lithography systems, up 34.8% and 175% from the prior quarter’s values, respectively. Also, its net bookings were 5,567 for the quarter, reflecting strong growth from the net bookings of 3,611 during the previous quarter.

In the quarter, the company, in collaboration with Imec, announced the opening of the joint ASML-Imec High NA EUV lithography lab, which allows access to the memory chip makers, and materials and equipment suppliers to the first prototype High NA EUV scanner and surrounding processing and metrology tools.

ASML President and Chief Executive Officer Christophe Fouquet commented, “Our second-quarter total net sales came in at €6.20 billion, at the high-end of our guidance, with a gross margin of 51.5%, which is above guidance, both primarily driven by more immersion systems sales.

He added, “We see 2024 as a transition year with continued investments in both capacity ramp and technology. We currently see strong developments in AI, driving most of the industry recovery and growth, ahead of other market segments.”

According to the company’s outlook for the third quarter of 2024, ASML expects total net sales between €6.70 billion ($7.32 billion) and €7.30 billion ($7.97 billion).

Shares of ASML have gained 27.9% over the past year to close its last trading session at $852.86. However, the stock has declined 8.2% over the past six months.

Let’s look at factors that could influence ASML’s performance in the upcoming months.

Positive Recent Developments

On June 3, ASML and Imec, a world-leading research and innovation hub in nanoelectronics and digital technologies, unveiled the High NA EUV Lithography Lab in Veldhoven, the Netherlands. The Lab will provide access to the prototype High NA EUV scanner and surrounding processing and metrology tools to the leading-edge logic and memory chip makers, and materials and equipment suppliers.

The opening of the joint ASML-Imec High NA EUV lab marked an important milestone in preparing High NA EUV for high-volume manufacturing.

Mixed Financials

For the second quarter that ended June 30, 2024, ASML reported total net sales of €6.24 billion ($6.82 billion), of which its net service and field option sales increased 14.3% year-over-year to €1.48 billion ($1.62 billion). However, its gross profit decreased 9.4% from the prior year’s quarter to €3.21 billion ($3.51 billion).

Also, the company’s net income came in at €1.58 billion ($1.72 billion) and €4.01 per share, down 18.7% and 18.7% from the prior year’s quarter, respectively. The company’s total assets increased to €40.74 billion ($44.05 billion) as of June 30, 2024, versus €39.96 billion ($43.65 billion) as of December 31, 2023.

Solid Historical Growth

ASML’s revenue grew at a CAGR of 15.3% over the past three years, while its EBITDA improved at a CAGR of 13.1%. Its EBIT increased at a CAGR of 12.2% over the same period, while the company’s net income and EPS grew at respective CAGRs of 12.1% and 14.3% over the same time frame.

However, the company’s levered free cash flow decreased at a CAGR of 75.1% over the same timeframe.

Favorable Analyst Estimates

Analysts expect ASML’s revenue for the third quarter (ending September 2024) to come in at $7.80 billion, indicating an increase of 11% year-over-year. The consensus EPS estimate of $5.34 for the same period reflects a 5.4% year-over-year improvement. Furthermore, the company has surpassed the consensus EPS estimates in all of the trailing four quarters.

For the fiscal year 2024, the company’s revenue is anticipated to grow marginally year-over-year to $30.23 billion, and its EPS is expected to be $20.57. In addition, Street expects ASML’s revenue and EPS for the fiscal year 2025 to grow 32.7% and 59% from the prior year to $40.11 billion and $32.70, respectively.

High Profitability

ASML’s trailing-12-month EBITDA margin of 33.59% is 224.5% higher than the 10.35% industry average. Its trailing-12-month net income margin of 26.50% is significantly higher than the industry average of 3.55%. Further, the stock’s trailing-12-month gross profit margin of 51.44% is higher than the industry average of 49.69%.

Furthermore, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 48.57%, 25.68%, and 16.55% are considerably higher than the industry average of 4.92%, 2.75%, and 2.24%, respectively.

Elevated Valuation

In terms of forward non-GAAP P/E, ASML is currently trading at 41.47x, 81.8% higher than the industry average of 22.82x. Also, the stock’s forward EV/EBITDA and Price/Sales of 32.38x and 11.16x are considerably higher than the industry average of 13.66x and 2.72x, respectively.

Additionally, the stock’s forward EV/Sales and Price/Book of 11.14x and 18.87x are 311.2% and 374.6% higher than the industry averages of 2.71x and 3.98x, respectively.

POWR Ratings Reflect Uncertainty

ASML’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, translating to a Neutral in our proprietary system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. ASML has a B grade for Quality, consistent with its higher-than-industry profitability. Also, it has a B grade for Sentiment, in sync with its optimistic analyst estimates.

However, the stock has an F grade for Value, justified by its higher-than-industry valuation. ASML is ranked #37 among the 90 stocks in the Semiconductor & Wireless Chip industry.

Beyond what I have stated above, we have also given ASML grades for Momentum, Growth, and Stability. Get access to all the ASML ratings here.

Bottom Line

ASML reported mixed financial results in the last reported quarter. Further, the company’s long-term prospects appear promising, driven by its innovative solutions and operational expansion, and strategic investments. However, it continues to grapple with decelerating sales growth and market uncertainties primarily driven by the macro environment and slow industry recovery.

Given ASML’s mixed financials and elevated valuation, waiting for a better entry point in this stock seems prudent.

Stocks to Consider Instead of ASML Holding N.V. (ASML)

Given its near-term uncertain prospects, the odds of ASML outperforming in the weeks and months ahead are compromised. However, there are many industry peers with much more impressive POWR Ratings. So, consider these A (Strong Buy) or B (Buy) stocks from the Semiconductor & Wireless Chip industry instead:

Qualcomm Inc. (QCOM)

ChipMOS Technologies Inc. (IMOS)

United Microelectronics Corp. (UMC)

For exploring more A and B-rated semiconductor stocks, click here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

ASML shares were trading at $866.51 per share on Tuesday afternoon, up $13.65 (+1.60%). Year-to-date, ASML has gained 15.03%, versus a 14.41% rise in the benchmark S&P 500 index during the same period.

About the Author: Rjkumari Saxena

Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions. More…

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