DD on Teradyne Inc 🎛
DD on Teradyne Inc 🎛
The semiconductor testing powerhouse
Teradyne Inc, Ticker: TER (+38% mentions)
Market cap: $19.5Bn
Teradyne Inc supplies automation test equipment for semiconductors, wireless products, data storage and complex electronic systems in the consumer electronic, automotive, industrial, communications and aerospace sector.
Essentially, the chip powering the phone or laptop you are reading this from has most likely been tested by Teradyne.
Teradynes biggest customers include Samsung, Qualcomm, Nvidia, Intel, Boeing, Texas Instruments, 3M, and IBM.
Don’t have time to read the whole thing? I’ll summarise below
3 main reasons why I like this stock (leave your GME puns at the door):
Overall semiconductor market future
Finances and balance sheet
Cathie Wood investment
2 possible downsides:
Low future earnings forecasts
Recent price volatility
If you like these summaries, let me know by leaving a comment!
Future
Almost everything requires a semiconductor now, and that will only grow further in the future, some of the biggest examples are:
The majority of mobile phones sold nowadays are smartphones, and while that growth has slowed down over the last few years, 1.5 billion a year are still sold.
The ecosystem surrounding mobile phones is growing rapidly, think tablets, smart watches, headphones, laptops, speakers.
Internet-of-things devices are booming, think Alexa, smart lighting, ovens, fridges,heating, mirrors etc.
Car technology (especially in electric cars) is mostly driven by semiconductor technology, shifting further and further away from analog technology
Gaming, from Playstations to VR headsets, again all require semiconductor technology
Automated manufacturing
Even without COVID, supply cannot keep up. There have been huge shortages this year for semiconductors causing pinches everywhere (have you tried purchasing a PS5 recently?) meaning lots of pent-up demand, even without, a number of HUGE factories have been built or will be built that are expected to ramp up supply. examples of those:
All of this will require automation and testing.
Long-term, it’s very safe to assume that irrespective of economic or technological shifts, semiconductor demand will not only sustain, but surge. A few things on the horizon that will likely affect this:
5G technology being rolled out worldwide
Space technology & tourism growth
AI & data technology
The biggest kicker? Teradyne provide the majority of the automation and testing for all of these sectors, meaning any growth here only benefits them.
Furthermore, to me they are also proofed from the whole “economy opening up means a move away from tech“ as it’s not like people will stop using electronic devices, unlike companies like Zoom which will see a big drop in usership as normality returns.
Finances
Even during a COVID year, Teradyne grew revenues from $2.29bn to $3.12bn, an increase of 36%.
They grew their net income even further, going from $467m to $784m, an increase of 67%.
Earnings per share (profit by number of shares) also grew, from $2.6 to $4.28 (+64%) last year which is astounding. (general consensus is anything above 25% growth is good).
When taking the price of the stock into account, and looking at Price-to-Earnings ratio (Price of the stock vs the earnings per share of a stock, the lower the better) Teradyne has a PE ratio of 24.9x, which is way better than the industry average of 38x.
From a debt position, Teradyne is very healthy with an equity-to-debt ratio (the lower the better, below 1 means more equity than debt) of 0.18.
Cathie Wood Investment
Cathie Wood, the very aggressive bullish investor whos ETF ARK Invest saw returns of 152% last year, has recently purchased a further 139,619 shares to add to the current position.
Extra purchasing here shows long-term confidence, as this was added after ARK had to rebalance and sell some Teradyne shares last year.
Possible Downsides
Some analysts are predicting modest future revenue growth at 5.8%, compared to the industry average of 16.2%.
Furthermore, the price this year has seen some large volatility, suffering from the sell-off that affected technology and growth stocks earlier this year. If more sell-offs ensue, this could cause the price to drop further in the short term.
Summary
Teradyne commands a large portion of a market that is only growing further every year. A financially healthy and well managed company, with high revenue and EPS growth, along with some strong investment backing. While there may be some volatility in the price of the stock short-term, long-term this company still has tremendous potential.
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