Soft Orders And Tensions Will Drag Revenue But Uncover Value

Key Takeaways

• Customer caution in key markets and ongoing geopolitical uncertainties are likely to constrain revenue growth and margin expansion despite new capacity and regional wins.
  
• Dependence on major accounts and shifting industry dynamics toward virtualized testing may cause earnings volatility and long-term pressure on physical product demand.
  
• Weak demand, market uncertainty, and temporary cost cuts are causing limited visibility, suppressed growth, and heightened risk for future earnings and margins.

Catalysts

Provides test and process technology solutions for use in manufacturing and testing in automotive, defense/aerospace, industrial, life sciences, security, and semiconductor markets in the United States and internationally.

• While inTEST is poised to benefit from accelerating digital transformation and the global push for electrification-in particular through their exposure to AI, cloud, IoT, EVs, and advanced battery markets-the company continues to face prolonged customer caution around capital expenditures, especially in the semiconductor sector. This sustained hesitancy is likely to cap near-term revenue growth and extend softness in order volumes.
  
• Despite building out manufacturing capacity in Malaysia to capitalize on regional supply chain opportunities and potential tariff mitigation, ongoing geopolitical tensions and further global trade uncertainties could disrupt cross-border demand and impede inTEST's ability to achieve targeted operational scale, which would weigh on both top-line growth and EBITDA margin expansion.
  
• Although the diversification strategy has led to wins in defense, automotive, and life sciences, customer concentration remains an underlying risk. If any major account delays or reduces orders, this could result in sharp fluctuations in revenue and increased earnings volatility, especially as inTEST's semi segment remains sluggish.
  
• While the shift towards higher-margin specialty applications is positive for gross margin profiles, the broader trend of movement toward software-based or virtualized testing may erode demand for physical testing equipment over the long term, pressuring both revenue growth and gross margins as industry needs evolve.
  
• Even as innovation efforts have supported a record-high pipeline and delivered a higher proportion of new product sales, lagging R&D investment relative to larger competitors and ongoing product life-cycle demands in an industry characterized by rapid obsolescence could limit inTEST's ability to keep pace with next-generation device complexities, impacting future market share and earnings potential.

inTEST Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on inTEST compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming inTEST's revenue will grow by 3.5% annually over the next 3 years.
• The bearish analysts are not forecasting that inTEST will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate inTEST's profit margin will increase from -0.7% to the average US Semiconductor industry of 14.4% in 3 years.
• If inTEST's profit margin were to converge on the industry average, you could expect earnings to reach $19.4 million (and earnings per share of $1.62) by about August 2028, up from $-833.0 thousand today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 6.8x on those 2028 earnings, up from -100.6x today. This future PE is lower than the current PE for the US Semiconductor industry at 28.2x.
• Analysts expect the number of shares outstanding to decline by 0.31% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.09%, as per the Simply Wall St company report.

inTEST Future Earnings Per Share Growth

Risks

• Persistently weak demand and sluggish conditions in the semiconductor and industrial capital equipment markets are leading to limited order visibility and flat backlogs, creating ongoing revenue risk and potential earnings volatility.
  
• The company acknowledges continuing global economic and tariff uncertainties, which are causing customers to remain hesitant on larger capital projects, suppressing near-term and possibly long-term revenue growth.
  
• Revenue declines year-over-year in core markets such as auto/EV and semi, combined with order declines and a decreasing backlog compared to the prior year, point to pressures on both top-line growth and future margin expansion.
  
• Cost reductions and headcount cuts are skewed toward temporary measures, raising the risk that operating expenses could rebound if growth resumes, potentially limiting lasting improvements to net margins and operating earnings.
  
• The company's guidance limits its visibility to the next quarter only, emphasizing that management has low confidence in forecasting beyond the very near term, which increases uncertainty for longer-term earnings and revenue trends.

Valuation

• The assumed bearish price target for inTEST is $8.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of inTEST's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $12.0, and the most bearish reporting a price target of just $8.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $134.9 million, earnings will come to $19.4 million, and it would be trading on a PE ratio of 6.8x, assuming you use a discount rate of 11.1%.
• Given the current share price of $6.85, the bearish analyst price target of $8.0 is 14.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.