Teradyne Inc (TER)

Conclusion

Teradyne designs and sells automated test systems for semiconductors, along with collaborative and autonomous mobile robots for industrial customers. At a price of 246 USD on 2026-11-09, the company has a market capitalisation of 38.4 billion USD.

The verdict is overvalued. The fair value band runs from 157.21 to 235.82 USD, with a midpoint of 196.52 USD and a margin of safety of -20.1% at the current price. Against their own historical medians, the price-to-sales ratio is 7.68 against 5.48, the price-to-book 10.41 against 6.92 and the price-to-free-cash-flow 37.47 against 29.94. The price-to-earnings ratio of 27.97 sits below its median of 30.90. A discounted cash flow value per share is not available, and no reverse DCF is given. Revenue grew at 0.44% a year over five years, while next year's earnings growth is estimated at 27.02%.

Four numbers support the case: return on invested capital of 43.05% against a WACC of 13.60%, an operating margin of 32.11% against a median of 23.34%, net cash with net debt to EBITDA of -0.18, and a current ratio of 2.08. Three weaken it: five-year EPS growth of -3.88%, free cash flow after stock-based compensation of -20.94 billion USD on a trailing basis, and a price-to-sales ratio of 7.68 against its median of 5.48.

Financial health

Financial strength is green, because all four measures are assessed good. The current ratio is 2.08 and the quick ratio 1.18. The company holds net cash, with net debt to EBITDA at -0.18 and debt to equity at 0.04. Trailing interest coverage is 241.4x. The Altman Z-score is 16.11, in the safe zone. The Altman model was designed for manufacturers, and Teradyne manufactures test equipment, so the reading is a fair guide. Insolvency risk: low, about 0.09% by the estimate of the Ohlson model over one to two years.

Earnings quality

Earnings quality is green, with one measure good and one neutral. Free cash flow conversion is 74.6% on a trailing basis and 83.4% over five years, and the accrual ratio is -3.1%, so reported earnings are backed by cash. The share count fell at a five-year compound rate of -2.94%, which points to buybacks. The Piotroski score is 5 of 8 evaluable criteria. The Beneish M-score is not available. The company beat earnings expectations in all 8 recent quarters, with an average surprise of 15.38%. Estimates rose over 90 days by 3.72% for the current year and 6.49% for next year. The main weakness is stock-based compensation at 439.1% of revenue, which leaves free cash flow after it at -20.94 billion USD on a trailing basis.

Profitability

Profitability is green. Every margin is above its historical median: gross margin 59.32% against 58.16%, operating margin 32.11% against 23.34% and net margin 27.46% against 19.80%. Operating margin stability is 43.04%. Return on invested capital is 43.05% against a WACC of 13.60%, a difference the model reports as 29.45 percentage points. The five-year median return on invested capital is 24.50%. Return on equity is 37.23%. The DuPont split for 2025 shows a net margin of 17.37%, an asset turnover of 0.76x and an equity multiplier of 1.49x. Leverage contributes only modestly, so the return comes mainly from margins and capital efficiency.

Growth

Growth is yellow, with two measures good, one neutral and one bad. Revenue compound growth is 0.37% over three years, 0.44% over five and 6.88% over ten. Revenue grew in 7 of 10 comparable years. Earnings per share compound growth is -5.88% over three years, -3.88% over five and 13.76% over ten, so the recent decline is the weak point. Free cash flow per share grew 5.36% over three years and 6.63% over ten, but fell 5.23% over five years. The one forward signal is next year's estimated earnings growth of 27.02%.

Valuation

Valuation is red, because its single assessed measure, the verdict, is bad. The price-to-earnings ratio of 27.97 compares with a median of 30.90, a premium of -9.5%. Enterprise value to EBITDA of 21.25 compares with 19.67, a premium of 8.0%. Price to free cash flow of 37.47 compares with 29.94, a premium of 25.2%. Price to sales of 7.68 compares with 5.48, a premium of 40.3%, and price to book of 10.41 compares with 6.92, a premium of 50.4%. The fair value band is 157.21 to 235.82 USD, with a midpoint of 196.52 USD. The fair value from historical multiples is also 196.52 USD. The discounted cash flow value per share is not available. Its inputs are a discount rate of 13.63% and terminal growth of 2.5%. The reverse DCF is not available. The dividend yield is 0.21%, the forward yield 0.19% and the payout on free cash flow 7.8%. These fair values are estimates built on fixed assumptions, not price targets.

Risks

The weakest number is five-year EPS growth of -3.88%. If the decline continues, the earnings base that supports the price shrinks. Stock-based compensation at 439.1% of revenue means shareholders bear a large cost. Buybacks offset dilution in the share count, but free cash flow after stock-based compensation is -20.94 billion USD. Price to sales of 7.68 against 5.48 leaves the multiple exposed if revenue growth stays near 0.44%. Several figures are not available: the discounted cash flow value per share, the reverse DCF and the Beneish M-score. This analysis also has no debt maturity schedule and no revenue split by segment, so refinancing risk and the mix of growth cannot be checked.