Semiconductor quality control company Nova (NASDAQ:NVMI) beat Wall Street’s revenue expectations in Q3 CY2024, with sales up 38.9% year on year to $179 million. On top of that, next quarter’s revenue guidance ($186 million at the midpoint) was surprisingly good and 4.6% above what analysts were expecting. Its non-GAAP profit of $1.74 per share was also 3.7% above analysts’ consensus estimates.

Is now the time to buy Nova? Find out in our full research report.

"Nova delivered another record quarter, exceeding the high end of the guidance in revenue and profit, with robust performance across all our product lines," said Gaby Waisman, President and CEO.

Company Overview

Headquartered in Israel, Nova (NASDAQ:NVMI) is a provider of quality control systems used in semiconductor manufacturing.

Semiconductor Manufacturing

The semiconductor industry is driven by demand for advanced electronic products like smartphones, PCs, servers, and data storage. The need for technologies like artificial intelligence, 5G networks, and smart cars is also creating the next wave of growth for the industry. Keeping up with this dynamism requires new tools that can design, fabricate, and test chips at ever smaller sizes and more complex architectures, creating a dire need for semiconductor capital manufacturing equipment.

Sales Growth

Reviewing a company’s long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for years. Luckily, Nova’s sales grew at an incredible 22.3% compounded annual growth rate over the last five years. This is a great starting point for our analysis because it shows Nova’s offerings resonate with customers. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

We at StockStory place the most emphasis on long-term growth, but within semiconductors, a half-decade historical view may miss new demand cycles or industry trends like AI. Nova’s annualized revenue growth of 6.3% over the last two years is below its five-year trend, but we still think the results were good and suggest demand was strong.

This quarter, Nova reported wonderful year-on-year revenue growth of 38.9%, and its $179 million of revenue exceeded Wall Street’s estimates by 4.1%. Management is currently guiding for a 38.6% year-on-year increase next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 21.3% over the next 12 months, an improvement versus the last two years. This projection is healthy and shows the market believes its newer products and services will catalyze higher growth rates.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

This quarter, Nova’s DIO came in at 189, which is 7 days above its five-year average. These numbers suggest that despite the recent decrease, the company’s inventory levels are higher than what we’ve seen in the past.

Key Takeaways from Nova’s Q3 Results

We were impressed by Nova’s strong improvement in inventory levels. Revenue and EPS also beat in the quarter, adding to the good news. We were also glad next quarter’s EPS guidance exceeded Wall Street’s estimates. Overall, we think this was a strong quarter with some key metrics above expectations. The stock traded up 5.9% to $202.50 immediately following the results.

Sure, Nova had a solid quarter, but if we look at the bigger picture, is this stock a buy? We think that the latest quarter is just one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.