Novanta Inc (NOVT, Financial) experienced a daily loss of -4.61% and a 3-month loss of -14.54%. Despite these declines, the company reported Earnings Per Share (EPS) of 2.14. The question that arises is, is the stock modestly undervalued? This article aims to answer this question through an extensive valuation analysis. Keep reading to explore Novanta's financial health, growth prospects, and true market value.
Introducing Novanta Inc (NOVT, Financial)
Novanta Inc is a leading manufacturer of photonic and motion-control components for original equipment manufacturers in the medical equipment and industrial technology markets. The company operates in three segments: photonics, vision, and precision motion. With the majority of its revenue generated from the United States and Europe, Novanta's stock price stands at $146.56, while its GF Value, an estimation of fair value, is $177.01. This article delves deeper into the company's value, providing a thorough financial analysis coupled with essential company details.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line gives an overview of the fair value that the stock should be traded at. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
According to the GuruFocus Value calculation, Novanta (NOVT, Financial), with its current price of $146.56 per share and the market cap of $5.20 billion, is believed to be modestly undervalued. This suggests that the long-term return of its stock is likely to be higher than its business growth.
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Assessing Novanta's Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss. To avoid this, an investor must review a company's financial strength before purchasing shares. Factors like the cash-to-debt ratio and interest coverage offer insight into a company's financial health. Novanta's cash-to-debt ratio of 0.2 ranks worse than 88.51% of 2376 companies in the Hardware industry. However, the overall financial strength of Novanta is 6 out of 10, indicating fair financial health.
Profitability and Growth
Investing in profitable companies carries less risk. A company with high profit margins offers better performance potential than a company with low profit margins. Novanta has been profitable 9 years over the past 10 years, with revenues of $889.90 million and Earnings Per Share (EPS) of $2.14 in the past 12 months. Its operating margin of 13.61% is better than 84.44% of 2448 companies in the Hardware industry. Overall, GuruFocus ranks Novanta's profitability as strong.
Growth is an important factor in the valuation of a company. Novanta's 3-year average revenue growth rate is better than 68.99% of 2338 companies in the Hardware industry. Novanta's 3-year average EBITDA growth rate is 13%, which ranks better than 54.23% of 1964 companies in the Hardware industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) can determine its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Novanta's ROIC is 9.93, and its WACC is 12.53.
Conclusion
In conclusion, the stock of Novanta (NOVT, Financial) is believed to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 54.23% of 1964 companies in the Hardware industry. To learn more about Novanta stock, you can check out its 30-Year Financials here.
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