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Let's talk about the popular Teradyne, Inc. (NASDAQ:TER). The company's shares saw a double-digit share price rise of over 10% in the past couple of months on the NASDAQGS. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Let’s examine Teradyne’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
Check out our latest analysis for Teradyne
What's The Opportunity In Teradyne?
According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Teradyne’s ratio of 28.01x is trading slightly above its industry peers’ ratio of 25.07x, which means if you buy Teradyne today, you’d be paying a relatively reasonable price for it. And if you believe that Teradyne should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. So, is there another chance to buy low in the future? Given that Teradyne’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What Kind Of Returns Can We Expect From Teradyne In The Future?
Valuation is only one aspect of forming your investment views on Teradyne. Another thing to consider is whether it is actually a high-quality company. The best type of investment is always in a great company, producing robust returns at a cheap price. A way to assess stock quality is by looking how much it returns to you as the investor compared to how much you’re invested. Teradyne is expected to return 31% of your investment in the next couple of years if you buy the stock today. This is a solid return on your investment which builds up the case for owning the stock.
What This Means For You
Are you a shareholder? TER’s optimistic future return appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of the company’s management team. Has anything significant changed since the last time you examined TER? And will you have enough conviction to buy should the price fluctuate below the industry PE ratio?