Aehr Test Systems vs. inTEST: Which Semiconductor Stock is a Better Investment?

Aehr Test Systems (AEHR) primarily designs, manufactures, and sells test and burn-in equipment for the semiconductor industry in North America, Asia, and Europe. On the other hand, inTEST Corporation (INTT) provides test and process solutions for manufacturing and testing in automotive, defense/aerospace, energy, industrial, medical, semiconductor, and telecommunications markets worldwide.

The semiconductor shortage has been a significant concern for governments and several industries across the globe. However, according to the recent International Data Corporation (IDC) report, front-end manufacturing is starting to meet demand in the third quarter of 2021, supported by substantial federal and private investments. Moreover, IDC predicts the semiconductor market to reach $600 billion by 2025, growing at a CAGR of 5.3%, higher than the typical 3-4% growth seen historically. Therefore, semiconductor stocks AEHR and INTT are expected to benefit.

AEHR has gained 576.1% over the past six months, while INTT has returned 25% over this period. Also, AEHR’s 525.3% gains year-to-date compares with INTT’s 94% returns. In terms of the past year’s performance, AEHR is the winner with 1,006.3% gains versus INTT’s 177.9%.

But which stock is a better buy now? Let’s find out.

Latest Developments

On September 7, AEHR announced that it had received a $19.4 million order from its lead silicon carbide test and burn-in customer for multiple FOX-XP systems to meet their increased production capacity needs. This should improve the company’s financial profile significantly.

On August 4, INTT announced the collaboration of its thermal subsidiary, inTEST Thermal Solutions, with C1D1 Labs to provide Thermonics® process chiller systems throughout the emerging cannabis industry. With the legalization of industrial cannabis by state governments, the need for equipment for cannabis processing is rising, providing the right opportunity for the company to gain a significant market share with its innovations in this space.

Recent Financial Results

AEHR’s net sales increased 180.6% year-over-year to $5.65 million in the fiscal first quarter ended August 31. Gross profit stood at $2.28 million, up 904.8% from the same period last year. Net income grew 550.5% from the year-ago value to $696 thousand. The company’s EPS increased substantially year-over-year to $0.03.

INTT’s total net revenues increased 63.9% year-over-year to $21.80 million in the fiscal second quarter ended June 30. Its non-GAAP net earnings grew 480% from its year-ago value to $2.90 million, while its non-GAAP EBITDA improved 400% year-over-year to $3.50 million. The company’s non-GAAP EPS improved 440% year-over-year to $0.27.

Past and Expected Financial Performance

AEHR’s revenue grew at a CAGR of 8.9% over the past five years. Analysts expect AEHR’s revenue to increase 71.2% in the current year and 17% next year. The company’s EPS is expected to grow 85.7% in the current quarter, 135.7% in the current year, and 140% in the next year. Moreover, its EPS is expected to grow 20% per annum over the next five years.

On the other hand, INTT’s revenues grew at a CAGR of 14.3% over the past five years. Analysts expect the company’s revenue to increase 50.4% in the current quarter, 53.9% in the current year, and 9.1% in the next year. The company’s EPS is expected to grow 214.3% in the current quarter, 2,966.7% in the current year, and 10.9% in the next year. Moreover, INTT’s EPS is expected to grow 15% per annum over the next five years.

Profitability

INTT is more profitable with a gross profit margin and EBITDA margin of 47.60% and 13.17%, compared to AEHR’s 39.96% and negative 13.26%, respectively.

Furthermore, INTT’s ROE, ROA, and ROTC of 10.27%, 7.11%, and 8.63% compared with AEHR’s negative 10.83%, 8.75%, and 11.71%, respectively.

Thus, INTT is more profitable here.

Valuation

In terms of forward EV/Sales, AEHR is currently trading at 13.45x, 88.9% higher than INTT, which is currently trading at 1.49x. Also, AEHR’s non-GAAP forward PEG ratio of 15.82 is 91.3% higher than INTT’s 1.37.

Thus, INTT is relatively affordable.

POWR Ratings

INTT has an overall rating of A, which equates to Strong Buy in our proprietary POWR Ratings system. AEHR, on the other hand, has an overall rating of D, which translates to Sell. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Both the stocks have a grade of A for Momentum. This is justified given their impressive year-to-date price performance.

INTT has a grade of B for Value. This is justified as its non-GAAP forward P/E ratio of 13.68 is 45.3% lower than the industry average of 25.02. On the other hand, AEHR has a grade of F for Value. Its non-GAAP forward P/E ratio of 316.40 is 1,164.6% higher than the industry average.

INTT has a grade of B for Quality, owing to its higher-than-industry average profit margins. INTT’s EBIT margin of 10.51% is 20.9% higher than the industry average of 8.69%. On the other hand, AEHR has a grade of D for Quality. This is justified as AEHR’s EBIT margin of negative 14.77% is substantially weaker than the industry average.

Of the 97 stocks in the B-rated Semiconductor & Wireless Chip industry, INTT is ranked #6, while AEHR is ranked #86.

Beyond what we’ve stated above, we have also rated the stocks for Stability, Sentiment, and Growth. Click here to view INTT ratings. Also, get all AEHR ratings here.

The Winner

The semiconductor industry is rebounding from the supply crunch, and it is expected to grow at a substantial pace in the upcoming years, enabling the well-positioned semiconductor stocks to generate significant returns. INTT being relatively profitable and trading at a relatively lower valuation is a better investment here.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Semiconductor & Wireless Chip industry here.

AEHR shares were trading at $13.87 per share on Tuesday morning, down $1.22 (-8.08%). Year-to-date, AEHR has gained 448.22%, versus a 17.52% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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