Teradyne Inc (TER, Financial), a leading provider of testing equipment for semiconductors, electronics, and hard disk drives, experienced 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. The question that arises for investors is: Is Teradyne fairly valued at its current stock price? This article seeks to answer this question by providing a comprehensive valuation analysis of the company.
Company Overview
Teradyne Inc, founded in 1960, specializes in delivering automated test equipment for semiconductors, hard disk drives, circuit boards, and electronics systems. In 2015, the company ventured into the industrial automation market, offering collaborative and autonomous robots for factory applications. With a diverse portfolio, Teradyne serves various end markets and geographies, with significant exposure to semiconductor testing.
Teradyne's current stock price is $101.73, which results in a market cap of $15.70 billion. The GF Value, our proprietary estimate of the stock's fair value, is $99.62. This comparison suggests that Teradyne's stock is fairly valued.
Understanding the GF Value
The GF Value is an exclusive GuruFocus measure that estimates the intrinsic value of a stock. It is computed based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line represents the fair value at which the stock should ideally be traded.
If a stock's price is significantly above the GF Value Line, it is considered overvalued, and its future return is likely to be poor. Conversely, if the price is significantly below the GF Value Line, the stock is undervalued, and its future return is likely to be higher. Based on our computations, Teradyne appears to be fairly valued, suggesting that its long-term return is likely to be close to the rate of its business growth.
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Financial Strength Analysis
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 purchasing its shares. Teradyne's cash-to-debt ratio of 6 ranks better than 66.07% of companies in the Semiconductors industry, indicating a strong balance sheet.
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 out of the past 10 years, with an operating margin of 22.32%, better than 83.74% of companies in the Semiconductors industry. However, the company's 3-year average revenue growth rate is lower than 53.63% of companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can provide insights into its profitability. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. Over the past 12 months, Teradyne's ROIC was 23.58, while its WACC was 13.76.
Conclusion
In conclusion, Teradyne's stock appears to be fairly valued. The company exhibits strong financial health and profitability, despite its growth ranking lower than 59.74% of companies in the Semiconductors industry. To learn more about Teradyne, you can check out its 30-Year Financials here.
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