Over the past six months, Nova’s shares (currently trading at $392.81) have posted a disappointing 11.8% loss, well below the S&P 500’s 16.8% gain. This may have investors wondering how to approach the situation.
Given the weaker price action, is now a good time to buy NVMI? Find out in our full research report, it’s free.
Why Is NVMI 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 put up a good quarter or two, but many enduring ones grow for years. Luckily, Nova’s sales grew at an exceptional 23.4% compounded annual growth rate over the last five years. Its growth beat 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 29%. This result isn’t too surprising as its gross margin gives it a favorable starting point.
3. Outstanding Long-Term EPS Growth
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Nova’s EPS grew at 27.4% compounded annual growth rate over the last five years, higher than its 23.4% 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 think Nova is a high-quality business. With the recent decline, the stock trades at 31.8× forward P/E (or $392.81 per share). Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
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