Does Teradyne’s Robotics Partnership Justify Its Recent 28% Rise?

Thinking about what to do with Teradyne shares? You're not alone. The stock closed recently at $144.38, and if you've been watching its moves, you have every reason to be intrigued. Over just the past week, Teradyne squeezed out a 0.7% gain. If you broaden the lens to thirty days, it’s sitting on a tidy 6.7% return. Factoring in the last year, the number jumps to 28.1%. Looking over a longer period, Teradyne has delivered a notable 77.9% over three years and a robust 64.0% over five years. At first glance, these numbers suggest dependable growth. Still, it raises the question of whether the current price is justified or if markets are getting ahead of themselves.

Recent announcements show Teradyne deepening its collaboration with leaders in robotics and automation, reinforcing its role in next-generation manufacturing and testing. While news flows like these may not always spark immediate price swings, they do shed light on why investor expectations for the company's future may be shifting.

Consider this: when you weigh Teradyne’s valuation today, it scores a 0 out of 6 on our value checklist. This means it is not currently ticking any boxes as undervalued. However, before making any judgment, it's worth breaking down exactly how that score is determined. Let’s explore the different approaches analysts use to value Teradyne and consider whether the numbers tell the whole story, or if there is a more insightful way to decide what this stock is really worth, which we will discuss later.

Teradyne scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Teradyne Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates what a company is worth today based on future expected cash flows. It does this by projecting how much cash the business will generate in coming years and then discounting those amounts back to their present value, acknowledging that money received in the future is worth less than money in hand today.

For Teradyne, analysts estimate the company’s current Free Cash Flow (FCF) at approximately $608.8 million. Looking forward, expert projections suggest annual FCF could reach $1,086.2 million by 2029. The DCF for Teradyne uses the "2 Stage Free Cash Flow to Equity" model, which first extends near-term analyst forecasts and then extrapolates beyond using long-range estimates. Beneath the hood, Teradyne’s projected FCFs climb steadily year over year, with ten-year calculations extending out to $1.54 billion in 2035 based on anticipated industry trends and internal growth.

When these cash flow figures are brought back to today’s dollars, the resulting intrinsic value estimate for Teradyne stock is $96.45 per share. With the recent share price closing at $144.38, the DCF implies the stock is currently about 49.7% above its intrinsic value. This indicates a significant overvaluation relative to projected cash flows.

Result: OVERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Teradyne.

Our Discounted Cash Flow (DCF) analysis suggests Teradyne may be overvalued by 49.7%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Teradyne Price vs Earnings

The price-to-earnings (PE) ratio is a go-to metric for valuing profitable companies like Teradyne, as it helps investors assess how much they are paying today for each dollar of current earnings. The ideal PE ratio can vary depending on how fast a company is expected to grow and how much risk investors believe the company faces. Generally, companies with higher growth prospects or lower risk profiles tend to justify higher PE ratios. Slower growth or higher risk leads the market to assign a more modest PE.

At the moment, Teradyne trades at a PE ratio of 49x, which is noticeably above both the semiconductor industry average of roughly 40x and the peer group average of 38x. These figures might initially suggest Teradyne is priced at a premium compared to its rivals. However, industry and peer multiples only tell part of the story. They often overlook nuances such as a company's unique growth outlook, profit margins, or risk factors.

This is where the Simply Wall St "Fair Ratio" comes into play. The Fair Ratio goes beyond a simple comparison, calculating what would be a reasonable multiple for Teradyne by weighing factors including its expected earnings growth, profit margins, industry position, market capitalization, and risk profile. For Teradyne, the Fair Ratio stands at 34.5x, which is considerably lower than its current PE of 49x. Since this gap is significantly larger than the 0.10 threshold, it points to the stock being overvalued on this basis.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Teradyne Narrative

Earlier, we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is more than just numbers; it’s your story about a company, connecting what you believe about Teradyne’s future to a financial forecast and, ultimately, a fair value estimate. With Narratives, you can easily lay out your assumptions for Teradyne’s future revenue, margins, and growth, then see how your unique perspective translates into a real-time valuation. Available on the Simply Wall St Community page and used by millions, Narratives make it simple to compare your Fair Value with the current share price, helping you decide whether to buy, sell, or hold based on your personal conviction. Every Narrative updates automatically as news or earnings come in, so your investment thesis always stays relevant. For example, some investors are highly optimistic, forecasting Teradyne’s fair value as high as $139.38, while others take a cautious view, seeing it closer to $85 based on concerns about industry risks and margins. This shows just how much your outlook can shape your decision.

Do you think there's more to the story for Teradyne? Create your own Narrative to let the Community know!

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.

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