What Makes a Compounder?
“Compounder” has become a buzzword in investment circles, but we define it simply: a company that delivers higher-than-average returns for longer-than-average periods.
The formula is basic economics – a compounder excels at both sides of the supply-demand equation:
Demand side: Growing revenue and profits drives investor interest
Supply side: Reducing share count increases each investor’s ownership percentage
Why ASML Makes the Cut
ASML demonstrates classic compounder characteristics:
Growing Demand
– Revenue growth from 11B in 2018 to 32B today
– Net income increase from $2.6B to $9.3B in the same period
– Dominance in advanced chip manufacturing equipment, particularly EUV and DUV technology
Decreasing Supply
– Consistent share count reduction through buyback programs
– Management’s clear focus on shareholder value
Why Now Is the Time to Buy
The current buying opportunity exists because:
– ASML is trading at the lower end of its historical P/E and P/S ranges
– The recent drawdown is among the deepest in years, comparable only to the 2022 tech slowdown
– The current pullback reflects cyclical semiconductor industry dynamics, not fundamental issues
– TTM revenue has already hit all-time highs, but the stock hasn’t caught up
Risks to Consider
– Potential semiconductor manufacturer CAPEX delays affecting ASML’s backlog
– Geopolitical risk with Taiwan, where many customers including TSMC are located
– Premium valuation relative to broader market