Inside the Bedokian’s Portfolio is an intermittent series where I will reveal what is actually inside our investment portfolio, one company/bond/REIT/ETF at a time. In each post I will talk a bit about the counter, why I had selected it and what lies ahead in the future.
For today’s counter, I had only just added it last week and that is Advanced Semiconductor Materials Lithography Holding N.V., better known as its shortened name ASML.
A Global Player
ASML was founded in the 1980s as a joint venture between two Dutch companies, one of which was the famous electronics company Philips. It makes photolithography machines that are crucial for the manufacture of integrated circuits, or chips/microchips in everyday speak.
The past decade had seen ASML’s rise with pioneering technology such as the extreme ultraviolet lithography (EUV) process, which allowed smaller process nodes and subsequently more compact chips to be made. The ongoing artificial intelligence (AI) revolution had provided a critical supporting role for ASML in the whole scheme of things.
A Holistic Analysis Approach
Granted that there were (and still are) many stock analysts, financial news channels, and investing and trading social media sites talking about ASML, it would be difficult not to be tempted to jump onto the bandwagon of like-minded ASML bulls. Thus, a degree of fundamental analysis was required before convincing ourselves to be vested.
Figure 1 shows selected financial line items for review, in particular revenue, net income, current and long-term debt, and free cash flow from 2022 to present.
Selected Financial Line Items (EUR, in millions) | Periods | |||
Trailing 12 Months | 31 Dec 2024 | 31 Dec 2023 | 31 Dec 2022 | |
Revenue | 30,714.4 | 28,262.9 | 27,558.5 | 21,173.4 |
Net Income | 8,702.8 | 7,571.6 | 7,839.0 | 5,624.2 |
Total Debt (current debt + long-term debt) | 4,687.6 | 4,631.6 | 4,260.4 | 4,584.1 |
Free Cash Flow | 9,283.7 | 9,083.1 | 3,247.2 | 7,167.5 |
Fig.1: Selected financial line items of ASML. Source: Yahoo Finance (as of 21 June 2025)
While revenue was increasing and total debt was kept around the same level, some of the small kinks encountered were the slight undulating net income and the large drop of free cash flow in 2023, the latter of which caused by a net effect of a larger amount of contract liabilities over contract assets. While the term “liabilities” may invoke some concerns, it is basically accounting treatment of payments and recognition of revenue.
As ASML is viewed as a growth counter, I used the growth investing selection guideline from the eBook1 and apply to it, though I also threw in price-to-earnings ratio for an overall picture (see Figure 2).
Equity Selection Guideline | ASML |
Price-to-Earnings (P/E) Ratio being the 25% lowest amongst other companies within the same sector/industry | ASML’s forward P/E of 27.55 is higher than industry average of 25.91 |
Price/Earnings-to-Growth Ratio of 1 and below | 1.44 (5-year expected) |
Operating Margin percentage being top 50% among other companies within the same sector/industry | ASML’s operating margin of 35.37% is in the top 50% among the same industry, whose average is 4.27% |
Return on Equity (ROE) percentage being average among other companies within the same sector/industry | ASML’s ROE is 55.62%, above industry average of 11% |
Positive free cash flow for at least the past three years | Positive as shown in Figure 1 |
Gearing ratio (Debt/Equity) is constant or reducing for the past three years | 0.21 (up to Mar 2025) 0.27 (2024) 0.37 (2023) 0.53 (2022) Signs of reduction |
Fig.2: Selected financial ratios and percentages of ASML. Sources: Yahoo Finance, Zacks, Gurufocus.com and Stockanalysis.com (as of 21 June 2025)
Though some of the ratios did not fit into the selection guidelines, such as PEG ratio > 1, and not being the average ROE percentage across the industry, certain liberties and discretions were taken to further the decision to go ahead with the investment; these are guidelines for conservative growth companies (stated in the eBook), and after all, most importantly, they are guidelines, i.e., not rules set in stone.
Another aspect that I want to bring in is the comparative figures used, like the industrial averages and P/E utilized, are sort of a red herring. The truest form of comparison is to find another company or sector/industry that matches closely to what ASML does, a not-so-easy task given that its closest competitors Canon and Nikon are conglomerates and their photolithography is just part of their overall operations.
This brings us to the next level of fundamental analysis after financial statements: environmental factors. ASML is a major player in the photolithography business commanding an estimated 90% of the global market share according to some sources, and its EUV process gave it a huge advantage over its other competitors. In gist, it is a near monopoly of its field. This is the major dealbreaker, plus its solid financial fundamentals, to make the buy call.
The Future
The biggest concern on the future profitability of ASML is its role in the whole geopolitical arena. The United States government had pressured ASML via the Dutch government to restrict some of their latest photolithography machines for export to China, from where it derived 41% of its revenue for financial year 2024. This may be slightly compensated with the demand for semiconductors in other parts of the world, fuelled by the need for smaller chips with faster processing, and not forgetting the burgeoning world of AI.
Disclosure
Bought ASML at:
USD 747.00 at June 2025
1 – The Bedokian Portfolio (2nd ed), p151-153
