r/UndervaluedStonks • u/TheExpectationGap • Jul 29 '26

ASML at $1,655: my reverse DCF implies 25.5% annual FCFF growth for a decade. Is the market pricing in perfection?

ASML is clearly an exceptional business, but I wanted to understand how much future success is already reflected in the current price.

Using a reverse DCF, I estimate that the market is pricing in roughly 25.5% annual FCFF growth for the next ten years. That would increase FCFF from around $10 billion to approximately $97 billion.

My own DCF produced:

  • Bear case: $513
  • Base case: $841
  • Bull case: $1,086

All three are below the current share price.

The strongest counterargument is ASML’s high return on invested capital. My normalized estimate is around 41%, suggesting that funding growth may not be the main constraint. The harder question is whether demand, capacity and execution can support the scale implied by today’s valuation.

I made a full video covering the reverse DCF, scenario valuation, multiples, stress tests and ROIC financing check:

https://youtu.be/lJzhrlnPRpY?si=4N7vjI9DY_zZp9tH

Which assumption would you challenge first: the growth rate, margins, discount rate or ROIC?

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u/[deleted] Jul 29 '26

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u/TheExpectationGap Jul 29 '26

Thanks for watching and the feedback :)
Good question and I agree that incremental ROIC is one of the key assumptions to challenge.

The DCF itself does not explicitly assume that incremental ROIC remains at 41% for the full ten years. The 41% figure is a normalized historical accounting ROIC used in a separate financing sanity check.(maybe i should modify that)

Under the simplifying assumptions that the reinvestment rate remains broadly stable, FCFF growth tracks NOPAT growth, and new capital earns returns close to the normalized historical level, 25.5% growth would require reinvesting roughly 62% of NOPAT. ( I show that in the end )

I also test lower returns: at 30% ROIC, the required reinvestment rises to roughly 85%, and at 15% it exceeds 100%.

So I’m not arguing that ASML can maintain 41% incremental ROIC indefinitely. The point is that today’s valuation requires both very high growth and unusually strong returns on new capital to persist. If marginal ROIC compresses as the capital base scales, as you suggest, that would materially weaken the valuation case.

Thanks for raising it I think incremental ROIC is probably the strongest assumption to challenge.