TER Stock Is Winning in the Semiconductor Age

teradyne stock
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Teradyne Stock Continues to Climb Higher

Today’s stock find is a good example of using our favored picks-and-shovels strategy for investing in growth stocks. This involves investing in companies that make products that cater to a strong technology trend.

Case in point: Teradyne, Inc. (NYSE:TER), which makes equipment for the semiconductor industry. It develops automatic systems that are used to test faults in semiconductors, wireless products, data storage, and complex electronics systems in diverse industries like consumer electronics, automotive, industrial, communications, aerospace, defense, and electronic game applications.

The company is a leading supplier of automated test equipment (ATE) used for semiconductor testing and other industrial applications. The company’s products and services include semiconductor test systems for computer chips.

The company says that it tests nearly half of the world’s semiconductors. The strong demand for Teradyne test systems is reflected in the gradually increasing TER stock price.

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Teradyne’s industrial automation products include collaborative robots that are used by global manufacturing and light industrial customers to enhance quality, increase manufacturing efficiency, and decrease costs.

Teradyne verifies that circuit boards are assembled correctly and ensures that products that ship are exactly as they were designed.

Teradyne’s customer base includes integrated device manufacturers, outsourced semiconductor assembly and test providers, distributors that sell collaborative robots, and original equipment manufacturers (OEMs). The demand for ATE is mainly due to the increased production of semiconductor devices, as well as the rise in complexity across various electronic products. This demand bodes well for Teradyne stock.

Teradyne has been innovating and growing to remain ahead of the competition. In 2015, the company acquired Universal Robots, the leading supplier of collaborative robots, which are low-cost and easy-to-deploy robots that work side-by-side with production workers.

In 2017, Teradyne had revenue of over $2.0 billion, a growth of 22% year-over-year. This was driven by a strong ATE market, semiconductor testing gains, and 72% sales growth posted by Universal Robots. The collaborative robots segment is a high-growth segment for the company, which should continue to positively impact Teradyne stock.

As per a recent report, the collaborative robots market is likely to grow to almost $4.3 billion by 2023, representing a compound annual growth rate (CAGR) of 56.9% between 2017 and 2023. The high growth is driven by increasing investments in automation by various industries. (Source: “Collaborative Robots Market worth 4.28 Billion USD by 2023,” MarketsandMarkets Research Private Ltd, last accessed March 13, 2018.)

Not only this, but emerging technology trends like advanced sensors, evolving memory protocols, and increasingly complex emerging wireless technologies should continue driving the test market growth, which would likely keep pushing TER stock higher.

In January, the company announced fourth-quarter and fiscal-year 2017 results. It was a strong year for the company, with quarterly sales growth of 26% year-over-year and double-digit growth in all business segments. Universal Robots sales grew 61% for the quarter and 72% for the full year, driven by the increased awareness of the advantages of collaborative robots for a wide range of applications.

Teradyne expects Universal Robots to continue posting more than 50% growth in 2018. The company’s focus on technological changes and shifts in the market toward mobility, automotive, and flash memory should continue to translate into higher gains and a higher Teradyne stock price, which is already hovering near its record highs.

TER stock has gone up by over 180% in the last five years and more than 65% over the last year. The phenomenal rise is shown in the chart below.

teradyne stock chart

Chart courtesy of StockCharts.com

Analyst Take

The ATE market comprises the advanced automated testing systems used for various applications such as those related to the consumer electronics, automotive, and medical sectors.

These systems identify defects in integrated circuits, circuit boards, and other electronic parts. As the use of semiconductors grows, the demand for these systems is expected to go up.

Since Teradyne is the dominant player in the field, the future appears bright for both the business and for TER stock.

Teradyne’s products are used by some of the world’s most innovative companies to ensure that their products work exactly the way they are supposed to. The company constantly seeks new ways to solve the most challenging testing and manufacturing issues, whether it is dealing with the latest technologies or shortening the time to market.

The company’s strong position in a growing market could lead Teradyne stock to deliver more triple-digit gains in the coming years.