What happened
Aehr Test Systems (AEHR -2.09%) stock surged 26.5% in July, according to data from S&P Global Market Intelligence. For context, the S&P 500 and Nasdaq Composite indexes returned 3.2% and 4.1%, respectively, last month.
The primary catalyst for its stock's big gain was the semiconductor test and reliability qualification equipment supplier's release of its report for the fourth quarter of fiscal 2023, which ended May 31.
This month, Aehr stock is down 7.8% as of Aug. 8, while the S&P 500 and Nasdaq are in the red by 1.9% and 3.2%, respectively. But that's a small pullback in the scheme of things, as the stock is still up a whopping 139% this year through Aug. 8.
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So what
On July 14, Aehr Test Systems stock jumped 18.2% following the company's release of its fiscal Q4 report on the prior afternoon. The broader market was approximately flat on this day.
Revenue grew 10% year over year to $22.3 million, and adjusted earnings per share (EPS) were flat with the year-ago period at $0.23. These results aren't impressive, so why did investors drive shares up more than 18%? There are likely two reasons: The bottom line beat Wall Street's consensus estimate of $0.21, and management's guidance for fiscal 2024 was rosy.
Now what
For fiscal 2024, ending May 31, management guided for revenue of at least $100 million, representing annual growth of over 50%. It also expects net income according to generally accepted accounting principles (GAAP) of at least $28 million, representing annual growth of more than 90%.
The main driver of this robust outlook is strong demand for the company's equipment stemming from the increasing use of silicon carbide semiconductors in electric vehicles (EVs) and EV chargers. That said, the company does have other attractive end markets, including solar power conversion, and data and telecommunications infrastructure.
In short, Aehr Test Systems is a relatively rare play on EVs in that its stock is a small-cap (market cap between $300 million and $2 billion) growth stock, and the company is profitable.
The company's small size increases its risk level as does the fact that a whopping 79% of its revenue in fiscal 2023 was generated by sales to one customer. But that concentration risk should slowly dilute over time. Investors comfortable with this higher risk level should put this small growth stock on their watch list.
