Is Teradyne Inc (TER) Fairly Valued? An In-depth Analysis
Teradyne Inc (NASDAQ:TER) recently recorded a daily gain of 2.09%, culminating in a 3-month gain of 13.46%. With an Earnings Per Share (EPS) (EPS) of 3.37, the question on the minds of potential investors is: Is the stock fairly valued? This article attempts to answer this question through a comprehensive valuation analysis. Read on to discover more about Teradyne's intrinsic value.
Company Overview
Teradyne Inc (NASDAQ:TER) is a leading provider of automated test equipment for semiconductors, system testing for hard disk drives, circuit boards, and electronics systems. Additionally, the firm offers wireless testing devices and has been in the industrial automation market since 2015, selling collaborative and autonomous robots for factory applications. Teradyne's most significant exposure is to semiconductor testing, serving vertically integrated, fabless, and foundry chipmakers with its equipment. The current stock price stands at $103.86, compared to the GF Value of $99.57, indicating a fair valuation.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value that the stock should be traded at. If the stock price is significantly above the GF Value Line, it is 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.
Given the current price of $103.86 per share, Teradyne (NASDAQ:TER) appears to be fairly valued according to GuruFocus' valuation method. This suggests that the long-term return of Teradyne's stock is likely to be close to the rate of its business growth.
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Financial Strength
Understanding a company's financial strength is crucial before investing in its stock. Companies with poor financial strength pose a higher risk of permanent loss. Teradyne's cash-to-debt ratio of 6 is better than 65.83% of companies in the Semiconductors industry, and its overall financial strength is 9 out of 10, indicating strong financial health.
Profitability and Growth
Investing in profitable companies carries less risk, especially those that have demonstrated consistent profitability over the long term. Teradyne has been profitable 9 years over the past 10 years, with an operating margin of 22.32%, better than 83.82% of companies in the Semiconductors industry. These figures indicate strong profitability.
Growth is a critical factor in a company's valuation. Teradyne's 3-year average revenue growth rate is better than 53.7% of companies in the Semiconductors industry. However, its 3-year average EBITDA growth rate of 14.7% ranks worse than 59.74% of companies in the industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) and the Weighted Average Cost of Capital (WACC) is another way to assess its profitability. For the past 12 months, Teradyne's ROIC is 23.58, and its WACC is 13.76, indicating a healthy return on invested capital.
Conclusion
In conclusion, Teradyne (NASDAQ:TER) appears to be fairly valued. The company boasts strong financial health and profitability, although its growth ranks lower than 59.74% of companies in the Semiconductors industry. To learn more about Teradyne stock, check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
