Aehr Test Systems (AEHR, Financial) has shown a significant daily gain of 3.75%, with a three-month gain of 12.3% and an Earnings Per Share (EPS) of 0.5. Despite these positive indicators, the question arises: Is the stock significantly overvalued? This article offers a comprehensive valuation analysis to answer this question and provide you with valuable insights into Aehr Test Systems' financial position. So, let's get started!
Company Introduction
Aehr Test Systems is a prominent player in the field of test systems for burning-in and testing logic, optical, and memory integrated circuits. The company's innovative products have been instrumental in improving yield and reliability in the Automotive and Mobility integrated circuit markets. The current stock price stands at $44.26, while the GF Value, our estimation of fair value, is $19.58. This discrepancy prompts a deeper investigation into the company's value.
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, and future business performance estimates. The GF Value Line gives 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 indicates overvaluation, and the future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, the future return will likely be higher.
According to our calculations, Aehr Test Systems (AEHR, Financial) appears to be significantly overvalued, with a current price of $44.26 per share and a market cap of $1.30 billion. This overvaluation suggests that the long-term return of its stock is likely to be much lower than its future business growth.
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Examining 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 buying shares. Aehr Test Systems has a cash-to-debt ratio of 7.6, ranking better than 68.03% of 904 companies in the Semiconductors industry. Based on this, GuruFocus ranks Aehr Test Systems's financial strength as 8 out of 10, indicating a strong balance sheet.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. 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%, ranking better than 82.67% of 952 companies in the Semiconductors industry. However, overall, the profitability of Aehr Test Systems is ranked 4 out of 10, indicating poor profitability.
Another crucial factor in the valuation of a company is its growth. The 3-year average annual revenue growth rate of Aehr Test Systems is 31.7%, ranking better than 86.24% of 872 companies in the Semiconductors industry. However, the 3-year average EBITDA growth rate is 0%, ranking worse than 0% of 775 companies in the Semiconductors industry.
Another way to determine the profitability of a company is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Aehr Test Systems's ROIC is 48.58, and its cost of capital is 23.99.
Conclusion
In summary, Aehr Test Systems (AEHR, Financial) appears to be significantly overvalued. Despite its strong financial condition, its profitability is poor. Its growth ranks worse than 0% of 775 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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