AEHR: We’ve Seen This Play Before

As always, be sure to read my disclosures / disclaimers below. Most notably, I do not encourage or recommend for anyone to follow my lead on any stocks listed here or otherwise, since I may enter, exit, or reverse a position at any time without notice, regardless of the facts or perceived implications of this article. Cheers.

Hang with me for a minute. This little history lesson leads to the money…

The following is a passage from IVAC’s 2007 Annual Report:

“In the period from the middle of 1998 thru 2003, our disk equipment revenues averaged approximately $20 million per year and consisted of the sale of a limited number of systems, technology upgrades, parts and service for the installed base of our systems.

In 2006, our sales of disk manufacturing equipment grew to $248 million in annual revenues.”

First sentence sounds like AEHR’s business prior to last week’s earnings call. The second sentence shows where AEHR could be in three years.

This is what happens when a vendor’s production equipment finds a critical need in the marketplace.

Also from IVAC’s 2007 Annual Report:

“The increase in Equipment revenues in 2006 was the result of the sale of forty-six 200 Lean systems, thirteen disk lubrication systems and a significant increase in revenue from disk equipment technology upgrades and spare parts. During 2005, we sold twenty-three 200 Lean systems, six MDP-250 systems and fourteen disk lubrication systems. 2005 revenues also included $5.0 million of flat panel equipment and license sales. During 2004, we sold eleven 200 Lean systems and two MDP-250 systems.”

Before that, FOUR was more common for IVAC… as has been the case for AEHR in recent years.

1998-2003: ~$20M
2004: $60M
2005: $129M
2006: $248M

The result was a move from $3.85 to 30.85 in 20 months. I bought near $7 and initially endured a pullback to just under $5. Having confidence in the research was critical to BUYING MORE instead of panicking out at a loss.

The best part is that I didn’t even need to wait the full three years to get the reward of that growth. This is because retail investors tend to only value what they see. Institutions value what they see coming. Thus, when institutions discover a name, the future potential can get priced-in quickly.

In this case, it only took 20 months… about half the time it took for IVAC to ramp from $20M to $248M in revenue.

That’s what happens when PROFESSIONALS take over a RETAIL name. We got a near 10 bagger, which equates to +11% per month and +250% annualized.

The math suggests that AEHR can experience an similar ride (see my YouTube Channel for video discussions regarding this).

Here’s how it looks so far:

As you can see, after my initial article on AEHR (last Friday at 12:35PM) the stock rose a modest 5% going into the weekend.

But then, on Monday morning, the fireworks erupted.

The company announced a $10.7 million order — its largest since I started following them, some 6 years ago. To put this into perspective, just three days prior, Wall Street was expecting the company to deliver just $20 million in revenue FOR THE YEAR. Then, AEHR raised those expectations (to $28 million) last Thursday.

With this order, I estimate that AEHR’s backlog is somewhere around $18 million. This easily eclipses the highest level I’ve observed and more importantly, means that AEHR is likely already on track to exceed $35 million for the year. That number represents over 110% year over year growth and should result in over 25-cents of EPS.

I’ve said this before, but I believe that a company with AEHR’s outlook, profile, and upside potential should be trading something closer to $12 right now, with eyes toward even higher levels as time (and events) unfold.

Last week, it came close.

The stock topped $9 at one point (a 182% profit for anyone who bought the stock after reading my article last Friday).

Of course, when a stock rises 182% in four days, some profit-taking is bound to take place. So nobody should be surprised with the recent pullback. Indeed, it mirrors the move IVAC experienced in its early stages of ramping from $3 to $30.

Incidentally, this is why it’s not a good idea to chase a stock too far from its original attractive starting point. Those who bought at 3 or 4 after reading my article are sitting pretty. Those who bought at 7, 8, or 9 could have waited for a better entry point, instead of paying a 100-200% premium to Friday’s prices.

This is why it’s important to read my educational pieces and Risk/Reward charting videos, to help make better investment decisions.

Speaking of better entry points, we’re there in my opinion. The stock has pulled back 33% from last week’s highs, bringing us back to $5.80 (at the lower end of my short-term Risk/Reward channel, depicted above). If I had no position, I’d be buying aggressively here… and I will personally be adding to my already-substantial position if it hits the bottom of the channel, around $5.50.

For further consideration on how to handle potential multi-baggers, here are a couple of charts for MVIS, chronicling its meteoric rise from 20-cents to 20 dollars.

Notice the initial action, where the stock takes off, but then pulls back before continuing its journey. This denotes a lack of understanding or belief in the situation. In the first chart below, you can see that investors / traders were largely selling/shorting the shares for less than $2.

Meanwhile, the possible outcome was already clear to those who effectively researched the opportunity and mathematical implications.

As for everyone else? Well, many (including yours truly) missed what came next…

Needless to say, I don’t plan to play timing games with this opportunity. Win or lose, the risk is only ~$2 versus some $40 of upside… with the odds favoring something in between (yielding a probable multi-bagger IMHO).

Why anyone would want to time their entry into an opportunity like that is beyond me. When I see a great opportunity, my strategy is to buy SOME (if not ALL) of the shares I want IMMEDIATELY and then build a bigger position if the stock becomes more attractive.

When opportunity knocks, you have to answer the door… every time.

As for this opportunity, a corroborating article was released on Tuesday. The article reminded me of CEO Gayn Erickson’s declaration that that the total available market (TAM) for Aehr’s FOX-XP system stands somewhere around $400 million annually, with AEHR poised to take a significant portion of that (because individual segments of the semiconductor test equipment market tend operate under a winner-take-most dynamic).

This lends further credence to the math I did last week, which suggests that AEHR can reasonably be expected to achieve $200M in revenue within 2-3 years, which would justify a market valuation on the order of $1 billion (around $40 per share).

I can’t say for SURE that this will happen (I never know), but when I find something like this, I ALWAYS buy… and that strategy pays off, year after year.

To see my current “Starting 5”, check out my last article here. Cheers!

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Disclosures / Disclaimers: This is not a solicitation to buy, sell, or otherwise transact any stock or its derivatives. Nor should it be construed as an endorsement of any particular investment or opinion of the stock’s current or future price. To be clear, I do not encourage or recommend for anyone to follow my lead on this or any other stocks, since I may enter, exit, or reverse a position at any time without notice, regardless of the facts or perceived implications of this article.

I am not a financial advisor. Nor am I providing any recommendations, price targets, or opinions about valuation regarding the companies discussed herein. Any disclosures regarding my holdings are true as of the time this article is written, but subject change without notice. I frequently trade my positions, often on an intraday basis. Thus, it is possible that I might be buying and/or selling the securities mentioned herein and/or its derivative at any time, regardless of (and possibly contrary to) the content of this article.

I undertake no responsibility to update my disclosures and they may therefore be inaccurate thereafter.  Likewise, any opinions are as of the date of publication, and are subject to change without notice and may not be updated. I believe that the sources of information I use are accurate but there can be no assurance that they are. All investments carry the risk of loss and the securities mentioned herein may entail a high level of risk. Investors considering an investment should perform their own research and consult with a qualified investment professional.

I wrote this article myself, and it expresses my own opinions. I am receiving no compensation for it, nor do I have a business relationship with any company whose stock is mentioned in this article. The information in this article is for informational purposes only and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

The primary purpose of this blog/forum is to attract new contacts with professional industry expertise to share research and receive feedback (confirmation / refutation) regarding my investment theses.


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