Does the ASML Stock Pullback Offer a Better Entry After Advanced Chip Demand News?

• Ever wondered if ASML Holding’s current price accurately reflects its value, or if there’s a more effective way to identify an opportunity before it becomes widely recognized?
• The stock is up an impressive 38.0% year-to-date and 42.4% over the past year. However, it has also experienced a recent pullback of -5.2% in the last week and -6.4% over the last month, which has kept many investors watchful.
• News regarding higher demand for advanced chips is keeping semiconductor stocks in focus. At the same time, ongoing global supply chain discussions are influencing expectations and contributing to volatility. ASML has attracted particular attention in recent weeks as major industry players have increased investments in next-generation manufacturing technology.
• ASML scores 2 out of 6 on our value checks, so its price story is not straightforward. Consider some common valuation methods below and explore an approach that extends beyond the typical numbers many observe.

ASML Holding scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: ASML Holding Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) valuation projects a company’s future free cash flows and then discounts them back to today’s value. This method helps investors estimate what the business is truly worth now based on future expectations. For ASML Holding, this process uses a 2 Stage Free Cash Flow to Equity model, drawing from both analyst forecasts and extrapolations.

ASML’s latest reported Free Cash Flow (FCF) stands at €8.56 billion. Analysts provide FCF projections out to 2029, at which point it is expected to reach €17.10 billion. Beyond these analyst figures, further projections are derived from established financial models by Simply Wall St, which forecast a continued steady rise through 2035.

Aggregating these cash flows and discounting them to present value produces an estimated intrinsic value of €748.59 per share. When compared to the current share price in USD, the DCF calculation implies the stock is trading at a premium of about 29.1% above its intrinsic value. This suggests an overvaluation based on cash flow fundamentals.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests ASML Holding may be overvalued by 29.1%. Discover 917 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for ASML Holding.

Approach 2: ASML Holding Price vs Earnings

For established, profitable companies like ASML Holding, the Price-to-Earnings (PE) ratio is a widely used valuation tool. This metric compares a company's current share price to its per-share earnings, giving investors a sense of how much they are paying for each dollar of profit. As a rule of thumb, a "normal" or "fair" PE ratio for a company will depend on its growth forecasts and the perceived riskiness of its cash flows. Faster-growing or lower-risk businesses typically command higher multiples.

ASML currently trades at a PE ratio of 34.1x. When compared to the semiconductor industry average of 33.7x and a peer average of 36.6x, ASML's multiple appears broadly in line with its sector. However, relying purely on peer or industry multiples can overlook important differences in growth prospects, profitability, and other company-specific factors.

That is where Simply Wall St’s proprietary “Fair Ratio” comes in. Instead of a one-size-fits-all benchmark, the Fair Ratio (calculated as 37.5x for ASML) considers a blend of the company’s forecast earnings growth, profit margin, market cap, risks, and industry characteristics. This tailored approach often provides a more accurate picture of what a fair valuation should look like for a particular business.

Comparing ASML's current PE of 34.1x to its Fair Ratio of 37.5x suggests the stock is trading just below what would be expected given all these factors. The difference between the two is about 3.4x, placing ASML in reasonable territory, neither glaringly undervalued nor significantly overvalued based on this metric.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1443 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your ASML Holding Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. A Narrative is a story you create that links your personal view on a company’s future with concrete financial forecasts, such as fair value, revenue, earnings, and profit margins. This brings the numbers to life by showing why you believe the company deserves its current price or does not.

Narratives help you move beyond static ratios and formulas. Instead, they connect your understanding of ASML’s unique competitive advantages or risks to a forecast and a valuation estimate tailored to your perspective. On Simply Wall St’s Community page, Narratives make it easy to update and share these insights, with millions of investors using them to stay ahead of the curve.

Whenever new information such as earnings, news, or regulatory changes impacts the company, Narratives automatically refresh, giving you a real-time edge and helping you decide when the gap between Fair Value and the current Price means it is time to buy, hold, or sell.

For example, on ASML Holding, recent community Narratives show Fair Values that range from as low as $748 to as high as $1,003, reflecting how different assumptions and outlooks can dramatically shift an investor’s stance.

Do you think there's more to the story for ASML Holding? Head over to our Community to see what others are saying!

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.

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