ASML stock, featured in today’s IBD 50 Stocks To Watch, is in buy range as chip equipment makers see surging demand amid the global semiconductor shortage.
Netherlands-based ASML (ASML) makes advanced lithography equipment for etching tiny circuits onto semiconductors. Key customers such as Intel (INTC) and Taiwan Semiconductor Manufacturing (TSM) are boosting capacity, fueling demand for ASML’s gear.
That’s helped ASML score double-digit sales and profit growth the past four quarters. And analysts expect that trend to continue in the current quarter. Last month, the Dutch company easily beat views with Q1 earnings that soared 264% on a 90% jump in sales.
“We are seeing a significant increase in demand from our customers across all market segments … compared to three months ago and we expect another very strong year with demand across our entire product portfolio,” CEO Peter Wennink said on the earnings call.
“The steeper than expected recovery in demand for semiconductors, amplified by the Covid-induced lower investments of the industry in 2020, has created significant upside to demand over the past quarter,” he added.
ASML Stock Gets An Upgrade
CFRA Research analyst Jun Zhang Tan upgraded ASML stock to buy from hold and raised his 12-month price target on its U.S. shares to 745 from 540.
“While it was widely anticipated the global semiconductor shortage will benefit ASML, the strength of the benefit is much stronger than market expectation,” Tan said in a client note.
IBD Stock Checkup assigns ASML stock a 98 Composite Rating, which gives investors a quick way to gauge a stock’s key growth traits. That puts it at the top of the 31-stock chip equipment group, which includes Applied Materials (AMAT) and Lam Research (LRCX).
A 98 Earnings Per Share Rating, part of the overall composite score, also leads the group. It reflects a five-year compound earnings growth rate of 26%. Analysts expect EPS to rise 44% this year and 20% the next. ASML has posted average EPS growth of 126% over the past three quarters.
An A SMR Rating (which measures sales, profit margins and return on equity) means the chip gear maker makes the top 20% of all stocks based on those metrics. Last year’s 30.2% pretax margin and 25.6% ROE were the highest in at least nine years. The ROE is well above the desired 17% minimum for leading growth stocks.
Technical Strength, Too
On the technical front, an 84 Relative Strength Rating shows ASML is beating 84% of all other stocks. The relative strength line, which compares a stock’s performance to the S&P 500, is close to a new high. That’s a bullish sign.
ASML is finding support and rebounding off the 10-week moving average for the second time since a November breakout, which sets up a chance to buy or add shares. The buy range extends from about 625.48 and goes up to 688, according to MarketSmith chart analysis.
An A- Accumulation/Distribution Rating points to more recent net buying vs. selling by mutual funds. The number of fund shareholders has steadily risen each quarter over the past two years. Highly regarded funds owning shares as of Q1 included MFS Growth (MFEGX), Frankly Growth (FKGRX) and Fidelity Contrafund (FCNTX).
Follow Nancy Gondo on Twitter at @IBD_NGondo
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