Why Aehr Test Systems (NASDAQ:AEHR) Could Be Worth Watching

Aehr Test Systems (NASDAQ:AEHR), is not the largest company out there, but it saw a double-digit share price rise of over 10% in the past couple of months on the NASDAQCM. While good news for shareholders, the company has traded much higher in the past year. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Today we will analyse the most recent data on Aehr Test Systems’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for Aehr Test Systems

Is Aehr Test Systems Still Cheap?

According to our valuation model, the stock is currently overvalued by about 34%, trading at US$11.98 compared to our intrinsic value of $8.95. This means that the opportunity to buy Aehr Test Systems at a good price has disappeared! But, is there another opportunity to buy low in the future? Since Aehr Test Systems’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What kind of growth will Aehr Test Systems generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with an extremely negative double-digit change in profit expected next year, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Aehr Test Systems, at least in the near future.

What This Means For You

Are you a shareholder? If you believe AEHR should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. Given the uncertainty from negative growth in the future, this could be the right time to de-risk your portfolio. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on AEHR for a while, now may not be the best time to enter into the stock. Its price has risen beyond its true value, on top of a negative future outlook. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Should the price fall in the future, will you be well-informed enough to buy?

So while earnings quality is important, it's equally important to consider the risks facing Aehr Test Systems at this point in time. For instance, we've identified 4 warning signs for Aehr Test Systems (2 are potentially serious) you should be familiar with.

If you are no longer interested in Aehr Test Systems, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.