Teradyne Inc (TER, Financial) saw a daily loss of -4.41%, with a 3-month gain of 11.7%. The company's Earnings Per Share (EPS) stands at 3.37. With these figures in mind, is Teradyne's stock fairly valued? The following analysis delves into this question, exploring the company's financial health and its intrinsic value.
Company Overview
Teradyne Inc provides testing equipment, including automated test equipment for semiconductors, system testing for hard disk drives, circuit boards, and electronics systems. The company also offers wireless testing for devices. Teradyne entered the industrial automation market in 2015, selling collaborative and autonomous robots for factory applications. With a significant exposure to semiconductor testing, the firm serves vertically integrated, fabless, and foundry chipmakers with its equipment.
Understanding Teradyne's Valuation
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical multiples, an adjustment factor based on the company's past performance and growth, and future estimates of the business performance. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is considered overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Teradyne (TER, Financial) is estimated to be fairly valued based on GuruFocus' valuation method. At its current price of $101.73 per share, Teradyne's stock is estimated to be fairly valued. As such, the long-term return of its stock is likely to be close to the rate of its business growth.
Financial Strength
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Hence, it is crucial to review the financial strength of a company before deciding to buy its stock. Teradyne has a cash-to-debt ratio of 6, which is better than 66.07% of companies in the Semiconductors industry. GuruFocus ranks the overall financial strength of Teradyne at 9 out of 10, indicating that the financial strength of Teradyne is strong.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. Teradyne has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $2.90 billion and Earnings Per Share (EPS) of $3.37. Its operating margin is 22.32%, which ranks better than 83.74% of companies in the Semiconductors industry. Overall, the profitability of Teradyne is ranked 9 out of 10, indicating strong profitability.
One of the most important factors in the valuation of a company is growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Teradyne is13.3%, which ranks better than 53.63% of companies in the Semiconductors industry. The 3-year average EBITDA growth is 14.7%, which ranks worse than 59.74% of companies in the Semiconductors industry.
ROIC vs WACC
Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. For the past 12 months, Teradyne's return on invested capital is 23.58, and its cost of capital is 13.76.
Conclusion
Overall, Teradyne (TER, Financial) stock is estimated to be fairly valued. The company's financial condition is strong, and its profitability is robust. However, its growth ranks worse than 59.74% of companies in the Semiconductors industry. To learn more about Teradyne stock, you can check out its 30-Year Financials here.
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