Aehr Test Systems (AEHR) Stock Pulls back Ahead Of Q2 Earnings

Semiconductor stocks suffered in 2022 but had some decent performance during the second half when looking at the VanEck Vectors Semiconductor ETF (SMH). The cyclical-tech niche is a risky spot right now, but one firm sports high growth, and shares of Aehr have rallied over the last six months. Are more gains in the cards this week after the firm reports quarterly results? Let’s take a look.

Chips Crash in 2022

According to Fidelity Investments, Aehr Test Systems provides test systems for burning-in semiconductor devices in wafer level, singulated die, and package part form worldwide. Its products include ABTS system that is used in the production and qualification testing of packaged parts for lower power and higher power logic devices, as well as for common types of memory devices; and FOX-XP and FOX-NP systems that are full wafer contact and singulated die/module test and burn-in systems for burn-in and functional tests of complex devices, such as leading-edge silicon carbide-based power semiconductors, memories, digital signal processors, microprocessors, microcontrollers, systems-on-a-chip, and integrated optical devices.

The California-based $553 million market cap Semiconductor & Semiconductor Equipment industry company within the Information Technology sector trades at a very high 61.6 trailing 12-month GAAP price-to-earnings ratio and does not pay a dividend, according to The Wall Street Journal.

There has been some positive news lately with Aehr as it recently snatched two production contracts as it continues to grow its wafer business in the EV space. Those pieces of news came after the company reported an EPS beat back in early October – shares rose big after that earnings report.

On valuation, CFRA Research notes that per-share profits should rise in Aehr’s upcoming Q2 report while revenues are seen as jumping big year-on-year. With both operating and net margins above the company’s peer-group average, sales growth and strong operating leverage should help the company increase bottom-line profits. Aehr also sports an above-average return on capital percentage and a decent cash flow-to-sales ratio.

Aehr: Earnings Outlook & Key Profitability Ratios

While Seeking Alpha grades the stock with a poor D+ valuation rating, I see the forward PEG ratio as somewhat decent here as it is significantly under 1, according to YCharts. Investors should also be aware that the Seeking Alpha Growth rating is a stellar A with A+ momentum. Finally, AEHR is ranked no. 1 in its industry (out of 29) using Seeking Alpha’s Quant Rating system and 17 out of 4758 overall.

Aehr Forward PEG Ratio Down to 0.63

Looking ahead, corporate event data provided by Wall Street Horizon shows a confirmed Q2 2023 earnings date of Thursday, January 5 after market close with a conference call immediately after results cross the wires. You can listen live here. The following earnings date is projected for March 30.

Corporate Event Calendar

The Options Angle

Digging into the upcoming earnings report, data from Option Research & Technology Services (ORATS) show a consensus EPS forecast of $0.08 which would be a strong percentage climb from just $0.05 of per-share profits earned in the same period a year ago. Impressively, the stock has topped analysts’ forecasts in each of the previous six quarters, but the stock has traded higher post-earnings in just two of the last four instances.

Back in October, the stock surged nearly 24% after reporting an earnings beat. This time, the options market has priced in a 12.3% earnings-related share price swing using the nearest-expiring at-the-money straddle. Given some monster realized volatility after earnings in the last year or two, that actually could be somewhat cheap in terms of premium. But what direction might you want to take on this stock? Let’s look to the chart.

EPS Growth Expected With Significant Implied Volatility

The Technical Take

A lot is going on in the chart of AEHR. Notice below that shares have pulled back significantly off the high of $28 about a month ago. In fact, the stock is now at trendline support from its July 2022 low. There is further support at the November pullback low of just under $18 where an old gap is found.

Also, notice that the volume-by-price bars on the left imply that there should be some support in the $14 to $17 area – the rising 200-day moving average currently comes into play in the low $14s. Finally, momentum has declined as the RSI at the top of the chart is in a downtrend but has not yet reached oversold levels.

Overall, it is a mixed technical situation, but long here into earnings could be a bold play. Given major gaps in price due to earnings, keeping a position size small is prudent.

AEHR Shares Retreat To Trendline Support

The Bottom Line

I like the quant rating and growth prospects with AEHR right now. Shares have pulled back significantly to trendline support. While there is the possibility of some downside to near $15, I also assert that the stock could find its footing here. With earnings volatility on tap, expect a big move up or down, so keeping your trade or investment size in check is wise for now.