Why Teradyne Shares Tanked

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Teradyne (NYSE: TER  ) , which bottomed out at a 10% loss before lunchtime, have clawed their way back to a slightly less gobsmacking 4% loss as of this writing. Despite a strong earnings report, Teradyne failed to wow investors with its forward guidance. The interplay between tomorrow's weakness and today's apparent strength is a major reason for the yo-yo performance today.

So what: Teradyne reported revenue of $428.9 million, well ahead of Wall Street's expectation of $407.4 million, despite suffering a 22% year-over-year decline. Earnings of $0.43 per share also trounced the $0.32 consensus. However, Teradyne now views its third quarter in a rather disappointing way; the company estimates between $425 million and $465 million in revenue and $0.39 to $0.49 in EPS. Both numbers are far below the analyst consensus, which sought $523.5 million on the top line and $0.60 in EPS.

Now what: Teradyne has had a difficult time growing its revenue and earnings since roaring back from the financial crisis. The company's free cash flow has also been in a slow multiyear decline. Guidance doesn't offer investors the promise of growth they had been hoping for, but shares are trading rather modestly, with a 20 P/E at the moment. Growth is important -- without it you're only buying a value trap -- and today's report didn't provide quite the momentum Teradyne investors were looking for. This would be a good time to do some more digging to determine whether this company can deliver the gains you need.

Want more news and updates? Add Teradyne to your watchlist now.

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9/23/2016 4:02 PM
TER $21.29 Down -0.27 -1.25%
Teradyne CAPS Rating: ****