Is It Too Late To Consider Novanta (NOVT) After Its Sharp Short Term Rally?

• If you are wondering whether Novanta's current share price still makes sense, you are not alone. The stock has been drawing fresh attention from investors focused on value.
• Novanta's share price recently closed at US$130.94, with returns of 17.8% over the last 7 days and 9.1% over the last 30 days, set against a 1 year return of an 11.2% decline and a 3 year return of a 13.0% decline.
• Recent news coverage has highlighted Novanta's role as a specialized technology provider across medical and industrial applications. This helps frame how investors think about its long term prospects and risk profile. This backdrop provides context for the strong short term move in the share price, as the market reassesses what it is willing to pay for that exposure.
• Despite this, Novanta currently has a valuation score of 0 out of 6. Next, we will look at how different valuation methods assess the stock today, and then finish with a more flexible way to think about what a fair price might be.

Novanta scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Novanta Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model projects a company’s future cash flows and then discounts those back to today to estimate what the entire business might be worth right now.

For Novanta, the model uses a 2 Stage Free Cash Flow to Equity approach based on cash flow projections. The latest twelve month free cash flow is about $98.4 million, and Simply Wall St applies analyst estimates where available, then extrapolates further out. For example, free cash flow is projected at $112.33 million in 2024, with a series of estimates and extrapolations running through to 2035, all expressed in dollars and then discounted.

Pulling these discounted cash flows together, the model arrives at an estimated intrinsic value of about $46.66 per share. Against the recent share price of US$130.94, this implies the stock is very expensive on this DCF, with an intrinsic discount figure indicating it is 180.6% overvalued.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Novanta may be overvalued by 180.6%. Discover 877 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Novanta.

Approach 2: Novanta Price vs Earnings

For a profitable company, the P/E ratio is a useful way to see what the market is willing to pay for each dollar of current earnings. It also reflects what investors are implying about the company’s prospects and risk profile.

In general, higher expected growth and lower perceived risk can support a higher P/E, while lower growth or higher risk tends to line up with a lower P/E. The key question is therefore not whether a P/E is “high” or “low” in isolation, but whether it makes sense relative to those factors.

Novanta currently trades on a P/E of 88.68x. That compares with an Electronic industry average P/E of 25.96x and a peer group average of 21.91x, so the stock is pricing in a much richer multiple than these simple benchmarks.

Simply Wall St’s Fair Ratio for Novanta is 42.13x. This is a proprietary estimate of what P/E might be reasonable given the company’s earnings growth profile, industry, profit margins, market cap and specific risks. Because it folds these elements together, the Fair Ratio can be more informative than a straight comparison with peers or the broad industry, which may not share the same characteristics.

Compared with this Fair Ratio, Novanta’s current P/E of 88.68x suggests the shares are trading well above what the model indicates as fair.

Result: OVERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1442 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Novanta Narrative

Earlier we mentioned that there is an even better way to understand valuation. On Simply Wall St’s Community page you can use Narratives, which let you spell out your story for Novanta, link that story to a forecast for revenue, earnings and margins, and then compare your fair value to the current price. The numbers update when fresh news or earnings arrive. One investor might build a very bullish Novanta Narrative that accepts a fair value of about US$154 per share based on higher assumed growth and margins. Another might create a far more cautious Narrative with much lower revenue and margin expectations, leading to a substantially lower fair value and a very different view on whether the current price looks attractive.

Do you think there's more to the story for Novanta? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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