Aehr Test Systems (AEHR, Financial) experienced a daily loss of -7.21%, and a 3-month gain of 18.95%. The company's Earnings Per Share (EPS) stands at 0.5. But is the stock significantly overvalued? This article aims to answer this question and provide a comprehensive valuation analysis of Aehr Test Systems. Keep reading to understand the intrinsic value of AEHR and make informed investment decisions.
Company Introduction
Aehr Test Systems, a prominent player in the semiconductor industry, specializes in test systems for burning-in and testing logic, optical, and memory integrated circuits. The company's products cater to the growing quality and reliability needs of the Automotive and Mobility integrated circuit markets. Aehr Test Systems has introduced several innovative products, including the ABTS™ and FOX-P™ families of test and burn-in systems and FOX WaferPak™ Aligner, FOX-XP WaferPak Contactor, FOX DiePak Carrier, and FOX DiePak Loader.
The company's stock price is $49.01, with a market cap of $1.40 billion. However, its GF Value, an estimation of fair value, is $19.4, indicating that the stock might be significantly overvalued. Let's delve deeper into the financials to get a clearer picture.
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It's calculated considering historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded.
Based on the GF Value calculation, Aehr Test Systems (AEHR, Financial) stock appears to be significantly overvalued. If the stock price is significantly above the GF Value Line, it indicates overvaluation, and its future return is likely to be poor. Conversely, if it's significantly below the GF Value Line, its future return will likely be higher.
Considering Aehr Test Systems' current price of $49.01 per share and a market cap of $1.40 billion, the stock appears to be significantly overvalued. As a result, the long-term return of its stock is likely to be much lower than its future business growth.
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Assessing 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 to buy shares. Aehr Test Systems has a cash-to-debt ratio of 7.6, ranking better than 68.04% of 895 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. 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 82.94% of 938 companies in the Semiconductors industry. Overall, the profitability of Aehr Test Systems is ranked 4 out of 10, indicating poor profitability.
Growth is a crucial factor in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Aehr Test Systems is 31.7%, which ranks better than 86.44% of 863 companies in the Semiconductors industry. The 3-year average EBITDA growth rate is 0%, which ranks worse than 0% of 766 companies in the Semiconductors industry.
ROIC vs 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 ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Aehr Test Systems's ROIC was 48.58, while its WACC came in at 23.86.
Conclusion
In conclusion, the stock of Aehr Test Systems (AEHR, Financial) appears to be significantly overvalued. The company's financial condition is strong, but its profitability is poor. Its growth ranks worse than 0% of 766 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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