Aehr Test Systems (AEHR - Get Rating) in Fremont, Calif., is a global provider of test systems for burn-in systems, test fixtures, die carriers, and related accessories used in the semiconductor industry. The semiconductor test equipment supplier reported stellar fiscal fourth-quarter earnings on July 15, delivering above-pre-pandemic revenues. Its bookings were up 113% from the prior-year quarter to $5.5 million, while its revenue came in at $7.6 million, doubling from $3.8 million reported in the prior-year period.

Over the past month, the stock has surged 161.9%. Furthermore, AEHR has gained 152.6% year-to-date. The company’s significant advancement in the silicon carbide device market and impressive financial performance have driven the rally.

However, the stock looks significantly overvalued at its current price level. Moreover, given the company’s mixed growth estimates, the stock’s near-term prospects look uncertain.

Click here to checkout our Semiconductor Industry Report for 2021

Here is what we think could influence AEHR’s performance in the coming months:

Increasing Demand for Semiconductor Equipment

This month, AEHR received a $10.8 million purchase order for its FOX-XP systems and full sets of WaferPak Contactors from a leading Fortune 500 semiconductor devices supplier. This silicon-carbide-focused system should enable its customer to meet its increasing electric vehicle semiconductor test and burn-in demand. Also this month, AEHR received another $2.9 million follow-on order from a leading silicon carbide customer for a FOX-XP Wafer Level Test and Burn-in system, as well as multiple WaferPak Contactors. As semiconductor suppliers ramp up their test capacity needs to cater to  electric vehicle (EV) applications, AEHR should continue to see growing demand for its burn-in systems and equipment.

Impressive Financials

AEHR’s net sales rose 102% year-over-year to $7.6 million in its fiscal fourth quarter ended May 31, 2021. The company’s operating income came in at $601,000 for this quarter, compared with a $2.84 million operating loss in the fourth quarter of 2020. Also, it reported a $3.53 million gross profit, versus a $93,000 gross loss in the prior-year period. AEHR’s non-GAAP net income amounted to $870,000 compared to a $720,000 non-GAAP net loss in the fourth quarter of 2020. Its EPS was $0.04 during this period

Mixed Growth Outlook

A $15.99 million  consensus revenue estimate for the current year represents a 28.3% decline year-over-year. Analysts expect AEHR’s revenue to rise 26% in its fiscal year 2022. However, AEHR’s EPS is expected to remain negative in 2021 and 2022. The Street expects the company’s EPS to rise 166.7% in the current quarter (ended May 2021) and 62.5% next year. But it failed to beat the consensus EPS estimates in each of the trailing four quarters.

Stretched Valuation

In terms of non-GAAP forward P/E, AEHR is currently trading at 127.80x, which is 391.5% higher than the 26x industry average. Its 6.39x non-GAAP forward PEG ratio is 262.6% higher than the 1.76 industry average. Also, AEHR’s 359.26x forward EV/EBIT ratio is 1,623.8% higher than the 20.84x industry average.  Also,  the stock’s trailing-12-month Price/Sales and Price/Book multiples of 9.03 and 13.20, respectively, compare poorly with  the 4.15 and 4.82 industry averages.

Consensus Price Target Indicates Potential Downside

Currently trading at $5.84, the $5 consensus price target  represents a 14.4% potential decline.

POWR Ratings Reflect Uncertainty

AEHR has an overall C rating, which translates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. AEHR has a D grade for Quality. The stock’s 36.3% trailing-12-month gross profit margin, which is 25.2% lower than the 48.6% industry average,  is in sync with this grade.

The company has a B Momentum grade, consistent with its price returns over the past month. In terms of Value Grade, AEHR has a D. The stock’s higher-than-industry P/E ratio is consistent with the grade.

In addition to the grades we’ve highlighted, one can check out additional AEHR ratings for Growth, Stability, and Sentiment here. AEHR is ranked #84 of 99 stocks in the B-rated Semiconductor & Wireless Chip industry. For other top-rated stocks in this industry, click here.

Bottom Line

Robust growth in revenue and operating profit in its  last reported quarter and growing follow-on orders for AEHR’s FOX-XP system from automotive semiconductor customers have caused  AEHR’s shares to skyrocket over the past month. However, its premium valuation and uncertain growth outlook could cause its shares to retreat in the near term. So, we think investors should wait for its growth prospects to improve before investing in the stock.

Click here to checkout our Semiconductor Industry Report for 2021

AEHR shares fell $5.84 (-100.00%) in premarket trading Wednesday. Year-to-date, AEHR has gained 119.76%, versus a 16.30% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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