Nova Ltd (NVMI)

Nova Ltd (NVMI)

Is Nova Ltd stock a good buy?

In this article, we review Nova stock to determine if it’s a good buy, sell, or hold.

Table of Contents

Nova is a metrology company that serves the semiconductor industry. They were founded in 1993 and are headquartered in Rehovot, Israel. They also have office locations in Germany, the US, Taiwan, South Korea, Japan, and China.

Tykr Rating

  • Summary: On Sale
  • Score: 20/20
  • MOS: 66%
  • Share Price: $102
  • Sticker Price: $301

Nova Company History

  • Nova was founded by Giora Dishon and Moshe Finarov. Dishon graduated from the Hebrew University of Jerusalem with a Ph. D in materials science. Finarov earned a Ph. D in semiconductor physics from the Technical University of Moscow.
  • In 1997 Nova Ltd landed its first big customer, Intel Corporation.
  • In 1999 they expanded offices to Japan and Singapore.
  • In 2000 they went public.
  • Dishon and Finarov both left the company in 2007 to pursue other ventures including companies such as Magenta-tech, Utilight, and BrightView Sytems. All of which are small private businesses.

Nova Business Model

Nova provides metrology solutions for the lifecycle of the semiconductor fabrication process. Metrology is the science of measurement, extremely small and precise measurements.

The services they provide may be broken down into the following categories.

  • Lithography – The process of creating a microscopic pattern of the desired circuitry onto a semiconductor wafer.
  • Deposition – The ability to deposit thin films of materials onto a substrate. Nova’s optical and x-ray metrology provides a wide range of solutions to address the film thickness and composition control requirements.
  • Etch – The process of creating patterned features on the wafer by selectively removing material. 
  • CMP (Chemical Mechanical Planarization) – Used to planarize, or flatten, a wafer surface using a combination of mechanical forces and chemical reactions.
  • Software solutions – Software modeling and AI provide customers with a complete modeling and application development solution designed for complex 3D and HAR structures.
  • Services – Full services project management, installation, calibration, and preventive maintenance services. The benefits of the services included stronger performance, longer product lifecycles, enhanced productivity, and training. 

Although their company history lists their first customer, Intel, they do not list who their customers are today. The reason is they do not want competitors stealing their customers.

To summarize, Nova does not manufacture semiconductor chips, they support the fabrication process which is an excellent business model. Nova is the essential utility that generates revenue by serving multiple semiconductor companies.

Nova Company News

This article from zacks.com says that both EPS and revenue exceeded expectations. The EPS estimate was $1.05 and they reported $1.30. Compared to a year ago, EPS was $.70. Regarding revenue, the estimate was $126M and they reported $133M. Compared to a year ago, revenue was $84M.

This article from simplywallst states that Nova may potentially be a multi-bagger stock meaning it may return over 100% in the very near future. The main reason is they have very strong financials, especially a continuously increasing ROCE (Return on Capital Employed) which is very similar to Tykr’s ROIC (Return on Invested Capital). The equation for ROCE is (Earnings before Interest and Tax) / (Total Assets – Current Liabilities). The equation for ROIC is (Earnings before Interest and Tax) / (Debt + Equity).

This article from finance.yahoo.com echos the impressive earnings report but also stated the company has seen 8 consecutive quarters of increasing revenue. The emphasizes the demand for semiconductors and companies that support the fabrication process.

Nova Competition

Nova Ltd (NVMI)

  • Summary: On Sale
  • Score: 20/20
  • MOS: 66%
  • Share Price: $102
  • Sticker Price: $301

KLA-Tencor Corporation (KLA.DE)

  • Summary: On Sale
  • Score: 18/20
  • MOS: 80%
  • Share Price: €329
  • Sticker Price: €1,653

Applied Materials (AMAT)

  • Summary: On Sale
  • Score: 17/20
  • MOS: 78%
  • Share Price: $116
  • Sticker Price: $543

Nova 4M’s

Now let’s take a look at the 4 M’s. A wise investor should always look past the numbers and look at the business.

MOS: With a score of 20/20, this shows the financials are very strong. The one area of improvement is the MOS of 66%. This still shows strong upside potential but it could be higher. Knowing the company’s EPS and Revenue continue to increase shows the MOS may continue above 50%.

Meaning: Nova is a boring but essential business. They support the demand of the semiconductor industry by providing metrology services to multiple semiconductor manufacturers. This is a smart business model. No matter if a semiconductor company will do well or not, Nova is still generating revenue.

Moat: There are a few public and private semiconductor metrology competitors but there is plenty of room for each company to thrive. We can see that both KLA-Tencor Corporation and Applied Materials are financially strong companies as well. There is also a high barrier to entry into this business model because of the advanced equipment, hardware, and software. If a new competitor were to enter this space it could take years if not more than a decade to catch up.

Management: Eitan Oppenhaim joined Nova in 2010 as Global Business Group Executive Vice President where he led sales, market, and customer support. He was soon after promoted to CEO in 2013. Prior to working at Nova, he served in leadership roles in multiple tech companies including Alvarion, OptimalTest, Orbotech, and Comverse.

Nova Financials

Now let’s take a look at the financials to get us closer to determining if Nova’s stock is a good buy. A wise investor should be able to read the income statement, cash flow statement, and balance sheet and within 60 seconds have a pretty good idea of how the business is performing.

Revenue (Found on the Income Statement)

  • 2018: $251M
  • 2019: $224M
  • 2020: $269M
  • 2021: $416M
  • Revenue has significantly increased in 2021 which is a great sign.

Net Income (Found on the Income Statement)

  • 2018: $54M
  • 2019: $35M
  • 2020: $47M
  • 2021: $93M
  • Net Income has also significantly increased in 2021 which is a great sign.

EPS (Found on the Income Statement)

  • 2018: 1.94
  • 2019: 1.26
  • 2020: 1.71
  • 2021: 3.31
  • EPS has increased in 2021.

Free Cash Flow (Found on the Cashflow Statement)

  • 2018: $32M
  • 2019: $19M
  • 2020: $53M
  • 2021: $127M
  • Free Cash Flow has increased in 2021 which is a great sign.

Assets (Found on the Balance Sheet)

  • 2018: $333M
  • 2019: $400M
  • 2020: $655M
  • 2021: $805M
  • Total Assets have consistently increased which is a great sign.

Total Liabilities (Found on the Balance Sheet)

  • 2018: $52M
  • 2019: $85M
  • 2020: $284M
  • 2021: $331M
  • Total Liabilities have increased which is okay.

Total Debt (Found on the Balance Sheet)

  • 2018: $0
  • 2019: $33M
  • 2020: $214M
  • 2021: $220M
  • Total Debt has increased which is okay.

Total Equity (Found on the Balance Sheet)

  • 2018: $280M
  • 2019: $314M
  • 2020: $371M
  • 2021: $473M
  • Total Equity has consistently increased. This is a great sign.

Is Nova stock a good buy?

Nova isn’t a household name and it probably never will be which is fine. There are a lot of boring companies that solve big problems and that’s what matters. Warren Buffett once said “I will tell you now that we have embraced the 21st century by entering such cutting-edge industries as brick, carpet, insulation, and paint. Try to control your excitement.” His sarcastic humor shines with this one and it speaks to the fact that boring companies are typically essential companies. With regard to Nova, the company is a necessity as the semiconductor industry continues to grow. The company has delivered a total return of 284% over 5 years which is an annualized return of 30%. If you’re looking for a great company that will most likely thrive over the coming years, Nova is worth a look.

The Summary, Score, and MOS of this stock may have changed since the posting of this review. Please login to Tykr to see up-to-date information.

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