ASML (NASDAQ; ASML), a leading Dutch semiconductor equipment company, recently released its first-quarter results, triggering a 7% stock decline on Wednesday, April 17th. Despite reporting strong year-over-year growth, the results presented a mixed picture. Separately, check out – Time To Buy Google Stock? Absolutely. Here’s Why.
On the positive side, ASML exceeded consensus estimates for earnings but slightly missed revenue expectations. The company reported earnings per share of €6.00, surpassing the estimate of €5.86. However, its reported revenue of €7.7 billion was slightly lower than the anticipated €7.8 billion.
But most importantly, a key indicator of future demand, net bookings, fell short of expectations. ASML reported net bookings of €3.9 billion, lower than the anticipated €4.3 billion. This shortfall appears to have contributed to the negative market reaction.
In their commentary, ASML’s management acknowledged the strong underlying demand, particularly driven by the booming artificial intelligence sector. Nevertheless, they highlighted the uncertainty created by tariffs, which is causing some customers to become more cautious. Consequently, the company indicated that it might achieve the lower end of its full-year sales guidance, which ranges from €30-35 billion.
Beyond the specifics of ASML’s results, broader market conditions are also a concern. The current period is marked by growing economic anxieties in the United States, largely stemming from President Trump’s tariff policies. This unfavorable macroeconomic environment poses additional challenges for companies like ASML, and as the management’s commentary suggests, the company is unlikely to be immune. This broader context reinforces concerns that ASML’s stock price could potentially decline to as low as $400 per share.
Here’s the thing: in a downturn, ASML can lose; no, there is evidence, from the recent economic downturns, that ASML stock lost as much as 57% of its value over a span of just a few quarters. Now, of course, individual stocks are more volatile than a portfolio, and in this environment, if you seek upside with less volatility than a single stock, consider the High-Quality portfolio, which has outperformed the S&P 500 and achieved returns greater than 91% since inception.
Why This Matters Now
Despite the commendable strong growth in ASML’s semiconductor business, significant macroeconomic and geopolitical headwinds warrant attention. While immediate inflation concerns have eased, the current administration’s assertive tariff and immigration policies are reigniting these anxieties, potentially leading to future economic instability. This economic uncertainty is further amplified by heightened geopolitical risks stemming from the administration’s policy initiatives, including ongoing trade disputes and strained negotiations with key allies like Canada, Mexico, and Europe, creating a more complex and elevated risk environment.
Concerning Performance Metrics
Notably, ASML stock has seen an impact worse than the benchmark S&P 500 index during some of the recent downturns —a critical consideration for investors evaluating their risk tolerance in today’s volatile environment.
While investors have their fingers crossed for a soft landing by the U.S. economy, how bad can things get if there is another recession? Our dashboard How Low Can Stocks Go During A Market Crash captures how key stocks fared during and after the last six market crashes.
How Resilient Is ASML Stock During A Downturn?
Inflation Shock (2022)
- ASML stock fell 57.4% from a high of $889.33 on 15 September 2021 to $379.13 on 14 October 2022, vs. a peak-to-trough decline of 25.4% for the S&P 500
- The stock fully recovered to its pre-Crisis peak by 1 February 2024
- Since then, the stock has increased to a high of $1,098.95 on 10 July 2024 and currently trades at around $630
Covid Pandemic (2020)
- ASML stock fell 37.9% from a high of $317.44 on 12 February 2020 to $196.99 on 18 March 2020, vs. a peak-to-trough decline of 33.9% for the S&P 500
- The stock fully recovered to its pre-Crisis peak by 20 May 2020
Global Financial Crisis (2008)
- ASML stock fell 64.6% from a high of $29.66 on 24 October 2007 to $10.49 on 20 November 2008, vs. a peak-to-trough decline of 56.8% for the S&P 500
- The stock fully recovered to its pre-Crisis peak by 5 April 2010
ASML’s stock has experienced a decline of nearly 20% from its February high of around $780, primarily reflecting investor concerns regarding the potential impact of tariffs on the company’s business. This downward trend could persist given the prevailing macroeconomic uncertainty. Drawing a parallel with the 2022 economic downturn, during which the stock fell by 57%, a similar drop could potentially push ASML’s share price below $400.
While ASML has demonstrated commendable revenue growth, averaging 15% over the past three years, the stock still commands a premium valuation with a price-to-sales (P/S) ratio of 8x, which is close to its three-year average of 9x.
Considering this context, investors holding ASML stock should consider: if the share price were to fall towards $400 or even lower, would you maintain your position or be inclined to sell?
Holding on to a falling stock is not always easy. Trefis works with Empirical Asset – a Boston area wealth manager, whose asset allocation strategies yielded positive returns during 2008/2009 timeframe, when the S&P lost more than 40%.
Empirical has incorporated the Trefis HQ Portfolio in this asset allocation framework to provide clients better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
While investors have their fingers crossed for a soft landing by the U.S. economy, how bad can things get if there is another recession? See the last six market crashes compared.
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