Aehr Test Systems (AEHR, Financial) has recently experienced a daily gain of 6.52% and a 3-month gain of 28.38%. Its Earnings Per Share (EPS) (EPS) stands at 0.5. Despite these positive figures, the critical question remains: is the stock significantly overvalued? This article aims to provide an in-depth analysis of Aehr Test Systems' valuation and to aid investors in making informed decisions. Stay tuned for a comprehensive review of the company's financials, growth, and market position.
Company Introduction
Aehr Test Systems engages in test systems for burning-in and testing logic, optical, and memory integrated circuits. The company's increased quality and reliability needs, driven by the Automotive and Mobility integrated circuit markets, have resulted in additional test requirements and incremental capacity needs. These needs have created new opportunities for Aehr Test Systems' products in package, wafer level, and singulated die/module level test. With a current stock price of $50.14, Aehr Test Systems has a market cap of $1.40 billion, making it significantly overvalued according to the GF Value.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock, derived from our exclusive method. This value is calculated based on historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at, GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
Aehr Test Systems' stock is believed to be significantly overvalued based on the GuruFocus Value calculation. At its current price of $50.14 per share, Aehr Test Systems has a market cap of $1.40 billion, and the stock is believed to be significantly overvalued. As Aehr Test Systems is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding whether to buy shares. Aehr Test Systems has a cash-to-debt ratio of 7.6, which ranks better than 68.07% of 902 companies in the Semiconductors industry. Based on this, GuruFocus ranks Aehr Test Systems's financial strength as 8 out of 10, suggesting a strong balance sheet.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Aehr Test Systems has been profitable 4 over the past 10 years. Over the past twelve months, the company had a revenue of $65 million and Earnings Per Share (EPS) of $0.5. Its operating margin is 20.59%, which ranks better than 82.79% of 947 companies in the Semiconductors industry. Overall, the profitability of Aehr Test Systems is ranked 4 out of 10, which indicates poor profitability.
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Aehr Test Systems is 31.7%, which ranks better than 86.21% of 870 companies in the Semiconductors industry. The 3-year average EBITDA growth is 0%, which ranks worse than 0% of 774 companies in the Semiconductors industry.
ROIC vs WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (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. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Aehr Test Systems's ROIC is 48.58 while its WACC came in at 23.83.
Conclusion
Overall, Aehr Test Systems (AEHR, Financial) stock is believed to be significantly overvalued. The company's financial condition is strong and its profitability is poor. Its growth ranks worse than 0% of 774 companies in the Semiconductors industry. To learn more about Aehr Test Systems stock, you can check out its 30-Year Financials here.
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