If you were to judge ASML (ASML) stock from its sales and earnings, it would be hard to believe it belongs in the IBD Big Cap 20.
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FactSet data shows a mix of gains and declines in quarterly performance for the Netherlands-based chip equipment provider. That data includes a 5% decline in 2022 earnings per share. (ASML reports its results in euros.)
But analysts now expect a robust 2023. The consensus estimate for first-quarter earnings is €20.06 per share, an increase of more than 30% from a forgettable 2022.
Last year, the company wrestled with Chinese trade restrictions and a weaker semiconductor market. Not that it was all so bad. Gross margin at the end of the year was 50.5% while the company ended the year with a record €40.4 billion backlog.
The U.S. ban on chip technology exports to China remains a risk for ASML stock. Yet, in the fourth-quarter report, the company said that customers expect the chip market to rebound in the second half of this year.
ASML Stock’s Competitive Edge
ASML has a competitive advantage. It makes advanced lithography equipment for etching tiny circuits onto semiconductors. It’s the sole supplier of the next-generation Extreme Ultraviolet (EUV) chip technology to the semiconductor industry.
Cowen has named ASML the top pick for its Europe Best Ideas, giving the stock an outperform rating.
“Strong EUV demand and extended lead times give us confidence that ASML can outgrow WFE (wafer fab equipment) near-term,” Cowen analyst Krish Sankar wrote in a note to clients.
The long-term roadmap of ASML’s three largest customers — Taiwan Semiconductor (TSM), Samsung and Intel (INTC) — supports EUV sales growth of (about) 40% year over year in 2023-24.
“We believe as EUV is now mainstream, there is a lot of earnings growth ahead for ASML,” the analyst added. ASML has gained share in lithography to over 80%, compared to less than 55% 10 years ago.
The uneven earnings performance has not deterred institutional investors. The number of funds owning ASML stock continued to rise in the past year, from 760 in Q1 of 2022 to 869 at the end of 2022, according to MarketSmith.
ASML Stock Forming Bullish Chart
Most analysts have buy or hold ratings on ASML, FactSet data shows.
ASML stock peaked at $895.93 in September 2021 and slid nearly 60% to $363.15 last October. Over the past eight weeks, the stock has been forming the first base of its recovery.
A cup without handle shows a buy point of 698.69. Shares climbed back above the 10-week moving average a couple of weeks ago. Watch for the relative strength line to make a new high. If that happens before or during the stock’s move to new highs, consider it a bullish sign.
The chip sector as a whole is acting well. The VanEck Semiconductor ETF (SMH) is up nearly 9% in March, set for its fifth monthly gain in the past six months.
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