2 Electronics Testing Stocks to Watch From a Challenging Industry

The Zacks Electronics – Testing Equipment industry has been suffering from a challenging global macroeconomic environment, end-market volatility, unfavorable forex and growing geopolitical tensions. The sluggish automotive sector, due to declining investments in electric vehicles, has been a major headwind for industry participants. The factory automation end market has been weak, and the conservative capital expenditure trend across consumer electronics is a headwind. However, industry players like AMETEK AME and Itron ITRI are benefiting from 5G-related growth opportunities, strengthening automation drive and the Industry 4.0 momentum. The increasing adoption of software-enabled testing instruments and devices is another positive.

Industry Description

The Zacks Electronics – Testing Equipment industry comprises companies offering advanced instruments, electronic testing equipment solutions, thermal management systems, electrical connectors, motors and various test solutions. The major end markets served by this industry are consumer, automobile, industrial, aerospace and defense, healthcare, semiconductors and communications, to name a few. Industry participants have been making technological advancements to gain traction among semiconductors, vehicles, machinery, smartphones and medical device manufacturers, who are constantly increasing their spending on electronic components.

4 Trends Shaping the Future of Electronics - Testing Equipment Industry

Solid Adoption of Motion Control & Test Systems is Positive: The rising utilization of precision motion-control solutions and automatic test systems in motion-control devices and testing products, particularly in the aerospace, automation, medical and military markets, is an upside. Commercial motor and autonomous vehicles will likely continue to hike the demand for vehicle-tracking systems, fleet-management solutions and other private fleet applications, which are part of the industry’s key offerings.

Synergies in the Pharmaceutical Market Are Tailwinds: The industry has been steadily gaining from the increasing use of electrical instruments and software to interrogate the biological properties of molecules and cells in clinical and medical science research. The rapid adoption of the solutions is anticipated to drive growth for participants in the pharmaceutical end market. Agilent is capitalizing on the trend and gaining traction in the life science research space. The pharmaceutical market holds immense prospects, courtesy of the growing utilization of electronic testing equipment. Rising demand for RF test equipment by medical device manufacturers is another uptrend.

5G Prospects Act as Boons: The growing deployment of 5G holds near-term promises for the industry players. Another major positive is an uptick in demand for 5G test solutions required for 5G deployment. In addition, the ongoing trend of migrating infrastructure workloads to the cloud, which continues to bolster the demand for high-speed Internet services, bodes well for electronic companies associated with 5G. The growing number of high-speed data centers worldwide is another tailwind. Given the upbeat scenario, the industry is anticipated to remain on the growth trajectory, backed by efforts to reinforce the 5G strength.

Macroeconomic Headwinds Pose Concerns: Due to the challenging macroeconomic scenario, enterprises are reluctant to sign multi-year deals worldwide. These trends do not bode well for the industry participants.

Zacks Industry Rank Indicates Dim Prospects

The Zacks Electronics – Testing Equipment industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #189 at present, which places it in the bottom 23% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, the average of the Zacks Rank of all the member stocks, indicates dim near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.

The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this group’s earnings growth potential. The industry’s earnings estimates for 2025 have moved south by 15.6% since Aug. 31, 2024.

Before we present a few stocks worth considering for your portfolio, let us look at the industry’s recent stock-market performance and the valuation picture.

Industry Underperforms S&P 500 & Sector

The Zacks Electronics – Testing Equipment Industry has underperformed the S&P 500 and its sector over the past year. The industry has inched up 0.6% over this period against the S&P 500’s appreciation of 19.5% and the broader sector’s return of 27.1%.

One-Year Price Performance

Industry's Current Valuation

Based on the forward 12-month price-to-earnings ratio (P/E), a commonly used multiple for valuing the Electronics – Testing Equipment stocks, the industry is currently trading at 23.59X, higher than the S&P 500’s 22.86X and lower than the sector’s 25.12X.

Over the past five years, the industry has traded as high as 24.66X and as low as 20.5X, with a median of 23.06X, as the chart below shows.

Forward 12-Month P/E Ratio

 

 

2 Testing Equipment Stocks to Watch

Itron: This Liberty Lake, WA-based company is benefiting from increasing utility modernization initiatives, resulting in higher uptake of its grid edge intelligence platform and steady demand across its robust portfolio spanning intelligent devices, software and analytics.

This Zacks Rank #2 (Buy) company is riding on product launches and solid uptake of the Grid Edge Intelligence solution. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Higher recurring revenue streams, services and software are expected to boost the Outcomes segment’s performance. Better product mix and ongoing cost and efficiency improvements are cushioning the margins.

Shares of Itron have climbed 16.7% year to date. The Zacks Consensus Estimate for 2025 earnings has been revised 8.1% upward in the past 30 days to $5.89 per share, indicating year-over-year growth of 4.8%.

Price & Consensus: ITRI

 

AMETEK: This Zacks Rank #3 (Hold) company is benefiting from solid momentum across the Electromechanical Group and Electronic Instruments Group segments. 

Positive contributions from Paragon Medical, Bison Engineering, Virtek Vision, Navitar, Alphasense, Magnetrol International and Crank Software acquisitions are driving the segments’ performance. Expanding portfolio with the launch of the EDAX Elite Ultra Energy dispersive X-ray spectroscopy system and the Phantom KT-series are noteworthy developments.

Shares of AMETEK have climbed 2.8% year to date. The Zacks Consensus Estimate for 2025 earnings has been revised four cents upward in the past 30 days to $7.14 per share, indicating year-over-year growth of 4.5%.

Price & Consensus: AME

 

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AMETEK, Inc. (AME): Free Stock Analysis Report
 
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This article originally published on Zacks Investment Research (zacks.com).

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