Teradyne (TER): A Comprehensive Analysis of Its Market Value
Teradyne Inc (NASDAQ:TER), a leading provider of testing equipment for semiconductors, electronics systems, and more, saw a daily gain of 3.32% and a 3-month loss of -7.27% as of September 28, 2023. With an Earnings Per Share (EPS) of 3.37, it's crucial to determine whether the stock is fairly valued. The following analysis delves into this question, providing a comprehensive evaluation of Teradyne's intrinsic value.
Introduction to Teradyne Inc (NASDAQ:TER)
Teradyne is a prominent player in the field of testing equipment, offering automated test equipment for semiconductors, system testing for hard disk drives, circuit boards, and electronics systems, and wireless testing for devices. The company, which ventured into the industrial automation market in 2015, now also sells collaborative and autonomous robots for factory applications. Teradyne serves a diverse range of markets and geographies, with a significant exposure to semiconductor testing. With a current stock price of $99.68 and a GF Value of $98.35, Teradyne appears to be fairly valued.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor considering the company's past performance and growth, and future business performance estimates. The GF Value Line provides a visual representation of the stock's ideal fair trading value. If the stock price is significantly above the GF Value Line, it's overvalued, and its future return is likely to be poor. Conversely, if it's significantly below the GF Value Line, its future return is likely to be higher.
Teradyne (NASDAQ:TER), with a current price of $99.68 per share and a market cap of $15.40 billion, appears to be fairly valued. This suggests that the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength of Teradyne
Before investing in a company, it's crucial to evaluate its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. Teradyne's cash-to-debt ratio of 6 ranks better than 65.75% of 905 companies in the Semiconductors industry, indicating strong financial health.
Profitability and Growth of Teradyne
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. Teradyne, which has been profitable 9 out of the past 10 years, has a strong profitability rank of 9 out of 10. Its operating margin of 22.32% ranks better than 84.8% of 954 companies in the Semiconductors industry.
However, the growth of Teradyne is a bit less impressive. The 3-year average annual revenue growth rate is 13.3%, which ranks better than 53.26% of 873 companies in the Semiconductors industry. The 3-year average EBITDA growth rate is 14.7%, which ranks worse than 59.28% of 776 companies in the Semiconductors industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) is another way to assess its profitability. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Teradyne's ROIC was 23.58, while its WACC came in at 14.75.
Conclusion
Teradyne (NASDAQ:TER) appears to be fairly valued, with strong financial condition and profitability. However, it's growth ranks worse than 59.28% of 776 companies in the Semiconductors industry. For more information about Teradyne stock, check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
