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Teradyne (NYSE: TER) reported earnings after the closing bell on Wednesday, April 23. The company posted earnings of $0.11 per share on revenue of $321 million. Analysts expected earnings of $0.07 on revenue of $318 million. So why did the stock fall after beating both earnings and revenue estimates? Because the second quarter forecasts were below expectations.
The daily chart shows what has transpired since the earnings report. The stock dropped 11.6% from Wednesday’s close to the low on Monday, but it appears to be reversing course now. It looks like a prime buying opportunity.
The weekly chart shows the pattern that makes me think the dip is providing a buying opportunity. You can see the trend channel and how this week’s low touched the lower rail of the channel before it bounced. You can also see how the 10-week RSI dipped down below the 40 level for the fifth time in the last two years. Each of these occurrences coincided with the stock touching the bottom rail of the channel and each time it did, the stock rallied at least 25% in the ensuing few months. I look for the stock to do the same thing this time around.
The sentiment indicators also provide a positive driver behind the trade. The short-interest ratio was at 15.6 on the last short interest report. Since I started writing this daily article at the beginning of April, this is the highest short-interest ratio that I have written about yet. The short-interest ratio has jumped from 4.6 to 15.6 since the beginning of the year. There are 37.95 million shares of TER sold short as of April 15 and that represents approximately 20% of the outstanding float.
This is the type of negative sentiment that can really drive a stock higher. If it starts to rally as I think it will, the short sellers will be jumping over each other trying to cover their positions and this will drive the stock considerably higher.
The put/call ratio is lower than I would like and the analyst ratings are average, but with the short interest ratio so high, the composite reading is still 17.68.
I look for Teradyne stock to move higher over the next few months and for the stock to move at least 25% higher. A weekly close below the bottom rail would serve as my stop and my target would be above $22.
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