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Should Value Investors Consider Teradyne (TER) Stock?
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Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Teradyne, Inc. (TER - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Teradyne has a trailing twelve months PE ratio of 19.9, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at 20.7. If we focus on the long-term PE trend, the current PE level is above its midpoint over the past five years, with the number having risen rapidly over the past few months.
Further, the stock’s PE also compares favorably with its industry’s trailing twelve months PE ratio, which stands at 29.3. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Teradyne has a forward PE ratio (price relative to this year’s earnings) of 19.3, so it is fair to say that a slightly more value-oriented path may be ahead for the stock in the near term too.
P/CF Ratio
An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management, and (b) are less affected by variation in accounting policies between different companies.
The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.
In this case, Teradyne’s P/CF ratio of 16.4 is lower than its industry average of 24.2, which indicates that the stock is undervalued in this respect.
Broad Value Outlook
In aggregate, Teradyne currently has a Zacks Value Style Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Teradyne a solid choice for value investors.
For example, the PEG ratio for Teradyne is 1.6, a level that is lower than the industry average of 2.3. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, TER is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Teradyne might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of A and a Momentum score of B. This gives TER a Zacks VGM score—or its overarching fundamental grade—of A. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been encouraging. The current quarter has seen six estimates go higher in the past sixty days compared to none lower, while the full year estimate has seven eight up and none down in the same time period.
As a result, the consensus estimate for the current quarter has risen by 14.3% in the past two months, while the current year estimate has inched higher by 12.1%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
This bullish trend is why the stock boasts a Zacks Rank #2 (Buy) and why we are expecting outperformance from the company in the near term.
Bottom Line
Teradyne is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. With a good industry rank (among the Top 8%) and strong Zacks Rank, Teradyne looks like a strong value contender. In fact, over the past one year, its industry has clearly outperformed the broader market, as you can see below:
So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.
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Should Value Investors Consider Teradyne (TER) Stock?
Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Teradyne, Inc. (TER - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Teradyne has a trailing twelve months PE ratio of 19.9, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at 20.7. If we focus on the long-term PE trend, the current PE level is above its midpoint over the past five years, with the number having risen rapidly over the past few months.
Further, the stock’s PE also compares favorably with its industry’s trailing twelve months PE ratio, which stands at 29.3. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Teradyne has a forward PE ratio (price relative to this year’s earnings) of 19.3, so it is fair to say that a slightly more value-oriented path may be ahead for the stock in the near term too.
P/CF Ratio
An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management, and (b) are less affected by variation in accounting policies between different companies.
The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.
In this case, Teradyne’s P/CF ratio of 16.4 is lower than its industry average of 24.2, which indicates that the stock is undervalued in this respect.
Broad Value Outlook
In aggregate, Teradyne currently has a Zacks Value Style Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Teradyne a solid choice for value investors.
For example, the PEG ratio for Teradyne is 1.6, a level that is lower than the industry average of 2.3. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, TER is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Teradyne might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of A and a Momentum score of B. This gives TER a Zacks VGM score—or its overarching fundamental grade—of A. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been encouraging. The current quarter has seen six estimates go higher in the past sixty days compared to none lower, while the full year estimate has seven eight up and none down in the same time period.
As a result, the consensus estimate for the current quarter has risen by 14.3% in the past two months, while the current year estimate has inched higher by 12.1%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Teradyne, Inc. Price and Consensus
Teradyne, Inc. Price and Consensus | Teradyne, Inc. Quote
This bullish trend is why the stock boasts a Zacks Rank #2 (Buy) and why we are expecting outperformance from the company in the near term.
Bottom Line
Teradyne is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. With a good industry rank (among the Top 8%) and strong Zacks Rank, Teradyne looks like a strong value contender. In fact, over the past one year, its industry has clearly outperformed the broader market, as you can see below:
So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>