TER - Goldman adds Teradyne stock to its conviction list: Should you buy?
2024-06-04 08:16:49 ET
Teradyne, Inc. (NASDAQ:TER) has been on a tear lately, reaching a 28-month high after Goldman Sachs upgraded the stock to a ‘Buy’ from ‘Neutral’ and raised its price target on the stock to $161 from $118 on May 20th. But is this a sign of things to come, or is the stock simply overheated? Let’s dive into Teradyne’s recent performance, financial details, analyst opinions, and future outlook to help you decide if it’s a worthy investment.
Recent news paints a brighter picture
Goldman Sachs adding TER to its Conviction List, a group of stocks they believe will outperform the market, on June 3 rd is a significant vote of confidence. Their optimism rests on two key factors:
- Recovering Inventory Levels: This suggests an industry-wide increase in demand, potentially leading to higher sales for Teradyne.
- Strong Demand for Chip Testing Equipment, Particularly from Apple: Apple’s reliance on Teradyne’s testing equipment bodes well for the company’s future.
Further bolstering investor confidence, Teradyne surpassed analyst expectations in its recent Q1 2024 earnings report. While revenue dipped slightly year-over-year to $600 million, earnings per share (EPS) of $0.51 (non-GAAP) beat analyst estimates, even with a 7.3% decline compared to the same period last year. Management’s strong Q2 outlook, indicating a significant sequential revenue increase, further fueled investor optimism.
Business fundamentals: A mixed bag
Despite the recent positive news, Teradyne has experienced a slight year-over-year decline in revenue over the past few quarters. However, there’s a silver lining: the company’s profit margin actually improved in Q1 2024 compared to the previous year.
Looking ahead, Teradyne is well-positioned to capitalize on several growth areas:
- The rise of Artificial Intelligence (AI): The increasing demand for AI creates a need for advanced chip testing solutions, which Teradyne is perfectly positioned to provide.
- High-Bandwidth Memory (HBM) testing: Teradyne anticipates significant market growth in this area, offering another potential avenue for future revenue increases.
- Robotics diversification: While still a small segment, Teradyne’s robotics business is expected to experience strong growth in the coming years, diversifying its revenue stream.
Analyst opinions: A divided front
Analysts are divided on Teradyne’s future. Goldman Sachs remains bullish, citing a clear recovery path and strong growth drivers like AI and HBM testing. However, other analysts remain cautious, pointing to past revenue declines and a potentially inflated stock price.
Technical analysis can be a valuable tool for understanding historical price behavior and identifying potential entry and exit points. By analyzing charts and technical indicators, we can gain a clearer picture of where Teradyne’s price might be headed next. So, let’s take a closer look at Teradyne’s stock chart now.
Resistance above $145
On the daily charts, we can see that Teradyne’s stock experienced a sharp decline in 2022, dropping from over $165 to below $70. Since then, the stock has attempted to recover but has mostly remained rangebound between $90 and $110. Recently, a few weeks ago, it broke out of this range and has surged rapidly.
Despite the recent surge, the stock has encountered resistance above $145, which aligns with the 61.8% Fibonacci retracement from its previous long-term swing low of $67.81 to its swing high of $168.91. Investors considering buying at current levels should exercise caution. Only if Teradyne’s stock trades above $145 can we confidently say it has entered a new bull run.
For bearish traders, the current levels present a low-risk entry point. They can short the stock while setting a stop loss just above the recent high of $146.53. If the stock loses momentum, it could fall back to its nearest support level at $118.30, where profits can be taken.
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