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ASML Holding N.V. (ASML) vs. Continental Resources, Inc. (CLR): Which is the Better Investment?

ASML Holding N.V. (NASDAQ:ASML) shares are up more than 4.71% this year and recently increased 3.78% or $6.63 to settle at $182.00. Continental Resources, Inc. (NYSE:CLR), on the other hand, is up 12.99% year to date as of 09/13/2018. It currently trades at $59.85 and has returned -1.30% during the past week.

ASML Holding N.V. (NASDAQ:ASML) and Continental Resources, Inc. (NYSE:CLR) are the two most active stocks in the Semiconductor Equipment & Materials industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.

Growth

The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect ASML to grow earnings at a 21.40% annual rate over the next 5 years.

Profitability and Returns

A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this. EBITDA margin of 29% for Continental Resources, Inc. (CLR). ASML’s ROI is 16.00% while CLR has a ROI of 3.20%. The interpretation is that ASML’s business generates a higher return on investment than CLR’s.

Cash Flow



Cash is king when it comes to investing. ASML’s free cash flow (“FCF”) per share for the trailing twelve months was +1.71. Comparatively, CLR’s free cash flow per share was +1.94. On a percent-of-sales basis, ASML’s free cash flow was 7.13% while CLR converted 23.37% of its revenues into cash flow. This means that, for a given level of sales, CLR is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. ASML has a current ratio of 2.70 compared to 1.00 for CLR. This means that ASML can more easily cover its most immediate liabilities over the next twelve months. ASML’s debt-to-equity ratio is 0.00 versus a D/E of 1.10 for CLR. CLR is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

ASML trades at a forward P/E of 22.54, a P/B of 6.17, and a P/S of 6.91, compared to a forward P/E of 15.71, a P/B of 3.97, and a P/S of 5.63 for CLR. ASML is the expensive of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. ASML is currently priced at a -9.45% to its one-year price target of 200.99. Comparatively, CLR is -21.03% relative to its price target of 75.79. This suggests that CLR is the better investment over the next year.

Risk and Volatility

Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. ASML has a beta of 1.06 and CLR’s beta is 1.28. ASML’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment




Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. ASML has a short ratio of 2.80 compared to a short interest of 5.73 for CLR. This implies that the market is currently less bearish on the outlook for ASML.

Summary

Continental Resources, Inc. (NYSE:CLR) beats ASML Holding N.V. (NASDAQ:ASML) on a total of 7 of the 14 factors compared between the two stocks. CLR is growing fastly, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, CLR is the cheaper of the two stocks on an earnings, book value and sales basis, CLR is more undervalued relative to its price target. Finally, ABEV has better sentiment signals based on short interest.

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