What a time it’s been for Nova. In the past six months alone, the company’s stock price has increased by a massive 44.2%, reaching $481.75 per share. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now still a good time to buy NVMI? Or are investors being too optimistic? Find out in our full research report, it’s free.
Why Is Nova a Good Business?
Headquartered in Israel, Nova (NASDAQ: NVMI) is a provider of quality control systems used in semiconductor manufacturing.
1. Skyrocketing Revenue Shows Strong Momentum
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Nova grew its sales at an incredible 25.3% compounded annual growth rate. Its growth surpassed the average semiconductor company and shows its offerings resonate with customers. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).
2. Operating Margin Reveals a Well-Run Organization
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Nova has been an efficient company over the last two years. It was one of the more profitable businesses in the semiconductor sector, boasting an average operating margin of 28.8%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
3. Outstanding Long-Term EPS Growth
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
Nova’s EPS grew at 30.9% compounded annual growth rate over the last five years, higher than its 25.3% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
Final Judgment
These are just a few reasons why we’re bullish on Nova, and with the recent surge, the stock trades at 47.3× forward P/E (or $481.75 per share). Is now the time to buy despite the apparent froth? See for yourself in our comprehensive research report, it’s free.
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