Novanta Inc (NOVT, Financial) experienced a significant drop in its stock value with a daily loss of 13.51% and a 3-month loss of 30.66%. Despite this downturn, the Earnings Per Share (EPS) stands at 2.14. This raises the question: Is the stock significantly undervalued? We aim to unravel this query by conducting a comprehensive valuation analysis of Novanta Inc. We invite you to delve into our findings.
An Overview of Novanta Inc
Novanta Inc (NOVT, Financial) is a renowned manufacturer of photonic and motion-control components for original equipment manufacturers in the medical equipment and industrial technology markets. Operating in three segments: photonics, vision, and precision motion, Novanta generates the majority of its revenue from the United States and Europe. Despite a recent decrease in its stock price to $119.75, Novanta's fair value, as estimated by the GF Value, stands at $179.41, suggesting that the stock may be significantly undervalued.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. This value serves as a benchmark for the fair trading value of the stock. If the stock price substantially exceeds the GF Value Line, it may be overvalued, indicating poor future returns. Conversely, if the stock price is significantly below the GF Value Line, it is likely undervalued, suggesting higher future returns.
Based on our GF Value, Novanta (NOVT, Financial) appears to be significantly undervalued. As such, the long-term return of its stock is likely to be much higher than its business growth.
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Financial Strength of Novanta
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. Novanta's cash-to-debt ratio stands at 0.2, ranking worse than 88.27% of 2369 companies in the Hardware industry. Based on this, GuruFocus ranks Novanta's financial strength as 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth of Novanta
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Novanta has been profitable 9 years over the past 10 years. During the past 12 months, the company had revenues of $889.90 million and Earnings Per Share (EPS) of $2.14. Its operating margin of 13.61% is better than 84.39% of 2454 companies in the Hardware industry. Overall, GuruFocus ranks Novanta's profitability as strong.
Growth is probably the most important factor in the valuation of a company. The 3-year average annual revenue growth of Novanta is 10.8%, which ranks better than 68.88% of 2330 companies in the Hardware industry. The 3-year average EBITDA growth rate is 13%, which ranks better than 54.36% of 1959 companies in the Hardware industry.
ROIC vs 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 ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Novanta's ROIC was 9.93, while its WACC came in at 13.46.
Conclusion
Overall, Novanta (NOVT, Financial) stock appears to be significantly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 54.36% of 1959 companies in the Hardware industry. To learn more about Novanta stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
