The stock of Nova Measuring Instruments (NAS:NVMI, 30-year Financials) gives every indication of being significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $87.85 per share and the market cap of $2.5 billion, Nova Measuring Instruments stock gives every indication of being significantly overvalued. GF Value for Nova Measuring Instruments is shown in the chart below.
Because Nova Measuring Instruments is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 6.1% over the past five years.
Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Nova Measuring Instruments has a cash-to-debt ratio of 1.98, which ranks in the middle range of the companies in Semiconductors industry. Based on this, GuruFocus ranks Nova Measuring Instruments's financial strength as 7 out of 10, suggesting fair balance sheet. This is the debt and cash of Nova Measuring Instruments over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Nova Measuring Instruments has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $269.4 million and earnings of $1.65 a share. Its operating margin is 20.63%, which ranks better than 84% of the companies in Semiconductors industry. Overall, the profitability of Nova Measuring Instruments is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of Nova Measuring Instruments over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Nova Measuring Instruments is 6.1%, which ranks in the middle range of the companies in Semiconductors industry. The 3-year average EBITDA growth is 0.4%, which ranks in the middle range of the companies in Semiconductors industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Nova Measuring Instruments's ROIC is 25.10 while its WACC came in at 7.76. The historical ROIC vs WACC comparison of Nova Measuring Instruments is shown below:
To conclude, Nova Measuring Instruments (NAS:NVMI, 30-year Financials) stock shows every sign of being significantly overvalued. The company's financial condition is fair and its profitability is strong. Its growth ranks in the middle range of the companies in Semiconductors industry. To learn more about Nova Measuring Instruments stock, you can check out its 30-year Financials here.
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