Teradyne

Methodology

Teradyne's fair value calculation works well during stable semiconductor equipment demand, but becomes unreliable during industry downturns when earnings collapse below normalized levels. Investors should normalize earnings across the equipment cycle, as trough-period valuations can appear artificially expensive despite representing attractive entry points. The method is most useful when applied to mid-cycle earnings estimates rather than current results.

Methodology

PEG ratios for Teradyne can be misleading due to the extreme cyclicality of semiconductor test equipment demand, with growth rates swinging dramatically between expansion and contraction phases. During upcycles, low PEG ratios may suggest value when the business is actually near peak earnings, while high PEG ratios during downturns may indicate opportunity rather than overvaluation. Investors should compare PEG to normalized cycle averages and consider where the industry sits in the capital spending cycle.

Methodology

Since Teradyne pays a modest dividend, PEGY provides some valuation support during downturns when growth rates turn negative and PEG becomes meaningless. However, the dividend yield is typically insufficient to materially offset the volatility in growth rates during semiconductor cycle swings. Like PEG, PEGY works best when applied to normalized cycle earnings rather than trough or peak results.