Aehr Test Systems Stock To $26?

Aehr Test Systems (AEHR) stock has jumped 23% during the past day, and is currently trading at $37.08. Our multi-factor assessment suggests that it may be time to sell AEHR stock. We have, overall, a pessimistic view of the stock, and a price of $26 may not be out of reach. We believe there are several things to fear in AEHR stock given its overall weak operating performance and financial condition. But keeping in mind its very high valuation, we think that the stock is very unattractive.

Below is our assessment:

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Let’s get into details of each of the assessed factors but before that, for quick background: With $1.1 Bil in market cap, Aehr Test Systems provides test and burn-in equipment, including wafer contact test systems, burn-in test systems, fixtures, and accessories for semiconductor and electronics manufacturers and service companies.

[1] Valuation Looks Very High

This table highlights how AEHR is valued vs broader market. For more details see: AEHR Valuation Ratios

[2] Growth Is Inconsistent

• Aehr Test Systems has seen its top line grow at an average rate of 0.2% over the last 3 years
• Its revenues have grown 5.0% from $51 Mil to $53 Mil in the last 12 months
• Also, its quarterly revenues declined -26.5% to $9.9 Mil in the most recent quarter from $13 Mil a year ago.

This table highlights how AEHR is growing vs broader market.

[3] Profitability Appears Very Weak

• AEHR last 12 month operating income was $-12 Mil representing operating margin of -22.8%
• With cash flow margin of -10.1%, it generated nearly $-5.4 Mil in operating cash flow over this period
• For the same period, AEHR generated nearly $-8.9 Mil in net income, suggesting net margin of about -16.6%

This table highlights how AEHR profitability vs broader market.

[4] Financial Stability Looks Very Strong

• AEHR Debt was $10 Mil at the end of the most recent quarter, while its current Market Cap is $1.1 Bil. This implies Debt-to-Equity Ratio of 0.9%
• AEHR Cash (including cash equivalents) makes up $31 Mil of $149 Mil in total Assets. This yields a Cash-to-Assets Ratio of 20.7%

[5] Downturn Resilience Is Very Weak

AEHR has fared worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• AEHR stock fell 73.0% from a high of $25.72 on 5 November 2021 to $6.94 on 1 July 2022 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 23 November 2022
• Since then, the stock increased to a high of $53.69 on 1 August 2023 , and currently trades at $37.08

 
2020 Covid Pandemic

• AEHR stock fell 57.3% from a high of $2.67 on 18 February 2020 to $1.14 on 18 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 26 January 2021

 
2008 Global Financial Crisis

• AEHR stock fell 92.6% from a high of $10.89 on 9 June 2008 to $0.81 on 26 June 2009 vs. a peak-to-trough decline of 56.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 13 September 2021

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.