Aehr Test Systems ( AEHR 6.56%), that makes semiconductor test and dependability certification devices, launched its financial fourth-quarter 2023 report last Thursday. Financiers liked the report, driving shares up 18.2% on Friday and up another 6.6% on Monday.
Profits for the quarter ended Might 31 grew 10% year over year to $22.3 million. Changed earnings was $6.8 million, or $0.23 per share, flat with the year-ago duration. The leading line fulfilled Wall Street’s agreement price quote, while the bottom line surpassed it.
In addition to the revenues beat, another most likely driver behind financiers’ interest was management’s positive talk about the revenues call about the business’s long-lasting development capacity. In addition, a portion of the stock’s post-earnings launch gain was most likely due to covering by short-sellers, as the stock has a large brief interest. (Short-sellers are those who are wagering that a stock’s cost will fall.)
Revenues releases inform just part of the story. Here are 2 essential things management shared on Aehr’s Q4 revenues call that financiers need to understand.
Image source: Getty Images.
1. Substantial development capacity from wafer-level test and burn-in items for silicon carbide and other markets
From CEO Gayn Erickson’s remarks:
The marketplace projection for wafer-level burn-in items is substantial. [Investment bank] William Blair approximates the overall readily available market for wafer-level burn-in items for silicon carbide alone to be over $400 million by 2027. Our company believe Aehr has the prospective to catch a considerable part of that market based upon the level of silicon carbide engagements we have with the clients around the world.
Initially, let’s put the forecast of a $400 million market size by 2027 in context. In financial 2023 (ended Might 31), Aehr created profits of $65 million, and management has actually directed for profits of over $100 million in financial 2024. We do not understand the profits breakdown, however it’s safe to presume the large bulk of financial 2023 profits comes from the silicon carbide wafer-level test and burn-in items, that includes systems and consumables.
So, presuming this $400 million price quote ends up being a relatively precise forecast and Aehr can catch a “substantial part” of this market, as management thinks, the business has really strong development capacity. Which development capacity will be even more powerful if the $400 million shows to be a conservative price quote of the 2027 market size.
The most significant long-lasting chauffeur of the development of this market will likely be the increasing usage of silicon carbide gadgets in electrical automobiles (EV).
2nd, management is forecasting that the business has substantial development capacity from markets beyond silicon carbide wafer-level test and burn-in items. Erickson stated on the revenues call that management thinks “silicon photonics can end up being a considerable market for wafer-level test and burn-in and might end up being as big or bigger than the silicon carbide market for our items later on in this years.”
2. Client concentration threat is very high
From the remarks of previous CFO Kenneth Spink (who is remaining on through the conclusion of Aehr’s financial 2023 yearly report, which is anticipated to be late August):
We did in fact have 2 clients [that accounted for] over 10% [of our fiscal 2023 revenue], one at 79% of earnings and the other at 10% of earnings.
The riskiest element of Aehr stock as a financial investment is the business’s very high client concentration threat. Aehr’s company would plunge if the one client that represented 79% of the business’s overall profits in financial 2023 unexpectedly chosen to either stop purchasing, or considerably lowered its costs on, Aehr’s items. That occasion would likewise practically certainly send out the stock plunging.
That stated, management anticipates that this client concentration will decrease in time, most likely beginning with the present . Erickson stated that management anticipates a number of clients to represent more than 10% of overall profits in financial 2024. He included, “[W] e were undoubtedly really greatly concentrated on our huge silicon carbide client this in 2015. And we anticipate while they will continue to be a terrific client and definitely a 10% client for many years to come, that there will be less of a focus in regards to concentration with them.”
In a nutshell, Aehr Test Systems stock is a high-risk, possibly high-reward financial investment.
Beth McKenna has no position in any of the stocks pointed out. The Motley Fool has no position in any of the stocks pointed out. The Motley Fool has a disclosure policy