Is Aehr Test Systems Stock a Good Investment?

Electric vehicle (EV) sales for 2023 are projected to be around 14 million vehicles, a 35% increase from 2022.

While Aehr Test Systems (NYSE: AEHR) makes testing products for various industries, the company’s revenue driver is test and burn-in equipment for silicon carbide semiconductors used in EVs.

Aehr Test’s role in the booming industry has driven the stock up massively from where it traded in 2021, at around $2 per share. And AEHR has continued to rise to where it currently trades at around $49. The stock is now up over 167% year-to-date.

AEHR shares got another boost with the recent announcement of its 2nd quarter of 2023 earnings. Not only did the company set records in sales, orders, and net income, Aehr Test announced the possibility that can expand its customer base to include AI chipmakers. But after the positive buzz and the meteoric stock price rise, many investors fear that AEHR is overvalued.

So is Aehr Test Systems stock a buy?

Aehr Test Systems Hits Billion Dollar+ Valuation

Aehr Test Systems makes test equipment for burning-in and testing logic, optical, and memory integrated circuits. It is still a small company with less than 100 employees, but it currently has a market capitalization of $1.4 billion.

In June, the company announced a new customer and a purchase order for their FOX-XP testing system. This system will support the volume production of silicon carbide MOSFETs used in electric cars, trucks, and trains.

The train traction inverter module in the deal was a unique innovation for Aehr. This new partner was described as a multinational industrial conglomerate ramping up its silicon carbide production.

That came from a January 2023 announcement that the company’s leading customer made another $25.1 million order. This Fortune 500 customer is a leader in producing semiconductors for the automotive segment.

How Does Aehr Test Systems Make Money?

The company’s flagship product is the FOX-XP multi-wafer high-throughput test and burn-in system. This system can test up to 18 silicon carbide wafers in parallel, with 100% contact with each wafer. The company also sells WaferPak Contactors that are used in conjunction with the FOX-XP system to make sure there is full contact.

In addition to the FOX-XP equipment, the company sells optional Automated FOX-XP Waferpak Aligner systems that speed up production by making unloading and loading wafers an automated process. Aehr Test Systems also makes Advanced Burn-in and Test Systems (ABTS) for testing packaged semiconductor parts.

The company recently announced a new configuration of the FOX-XP system that will be its most powerful solution to date. This new system will test the type of silicon photonics chips that are an important component of high-powered compound computing chips. That means that Aehr Test is poised to have a critical role in the emerging AI industry and EVs.

Is AEHR Stock Overvalued?

The company’s net sales of $22.3 million in the 2nd quarter of 2023 were up 9.85% from $20.3 million in net sales in the second quarter of 2022. Net income of $6.11 million in the second quarter was also up 5.5% year-over-year from $5.79 million. Diluted earnings per share were up 5% from $0.20 in 2022 to $0.21 in the quarter.

Cash and cash equivalents were up 52% year-over-year, from $31.5 million in 2022 to $47.9 million in the second quarter. Aehr Test currently has a backlog of $24.5 million as of the end of the quarter. The company’s second-quarter revenue, profits, and bookings were all records for Aehr Test Systems.

In spite of a very positive quarter, the company’s P/E ratio is 99.21. That high value is alarming to investors who fear the stock is overvalued after the run-up. But bulls will argue that the company’s cutting-edge technology could be a part of two emerging industries, AI and EVs, and that more than justifies the stock’s price.

2 Analysts Rate Aehr Test Systems a Buy

Because AEHR is a small-cap stock in a niche market, few analysts have issued ratings on the stock.

Out of the two analysts who have given forecasts, both believe AEHR is a buy.

The consensus among the analysts is that Aehr Test stock will continue to rise over the next 12 months, even as high as $60.

Is Aehr Test Systems Stock a Buy?

Aehr Test Systems makes testing equipment for semiconductor manufacturers. The company’s products are in high demand because they speed up the quality production of silicon bicarbide semiconductors used in EVs. Because of this demand, AEHR’s stock price has soared over the past few years.

Concerns that the stock may level off were alleviated after the company’s most recent earnings. Aehr Test increased sales and announced new purchase orders and new customers in the second quarter. The possibility that the company’s technology could be used in the AI industry incentivizes many investors to believe that AEHR has plenty of room to rise.

Because of solid sales growth, profitability, and cash on hand, Aehr Test stock is an attractive option for investors who are looking for growth stocks in disruptive industries. But the high P/E value is a factor to consider because it means there’s still some risk that the stock could be overvalued.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.