Nova Measuring Stock Could Be Setting Up for 50% Gain

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Nova Measuring Stock May Be Getting Ready to Pop

Israel has produced some world-class technology and healthcare stocks over the past decade, to the point where the country is the second-biggest foreign-listing country on the Nasdaq after China. Plus, Israel’s financial numbers are viewed as more trustworthy.

An intriguing small-cap Israeli technology company that could be a good risk-to-reward opportunity is Nova Measuring Instruments Ltd. (NASDAQ:NVMI).

NVMI stock is hovering around the midpoint of its 52-week range, and it could be setting up for a breakout attempt.

Trading up a mere 2.5% this year and down 5.6% over the past year, Nova Measuring stock is worth a closer look for investors who are searching for good upside potential.

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Nova researches and develops high-performance metrology solutions used by semiconductor manufacturers to produce better products.

This manufacturing services segment is popular with many semiconductor companies that seek third-party help in producing superior products.

On the chart, NVMI stock languished in a tight sideways channel between $9.00 and $12.50 from December 2013 to December 2017, prior to breaking out.

Chart courtesy of StockCharts.com

Nova Measuring stock is currently caught in another narrow sideways channel, bordered by $25.00 on the support side and $29.00/$30.00 on the resistance side.

While it’s unclear whether the stock is in a distribution or accumulation channel, the improving fundamentals support a bull case for this stock.

Why NVMI Stock Could Be Heading Higher

Nova Measuring Instruments reported four consecutive years of sequential revenue growth, with revenues doubling from 2013 to 2017. The 35.4% growth in 2017 was the highest achieved by the company over the past five years.

Fiscal Year Revenue (Millions) Growth
2013 $111.5
2014 $120.6 8.2%
2015 $148.5 23.1%
2016 $163.9 10.4%
2017 $222.0 35.4%

(Source: “Nova Measuring Instruments Ltd.,” MarketWatch, last accessed October 1, 2018.)

There may be some concern that the expected revenue growth rate is set to decline in 2018 and 2019, but my view is that it’s not a major issue at this point, since growth rates tend to moderate as the revenue base increases.

For 2018, Nova Measuring Instruments is expected to record revenue growth of 12.6% to $249.7 million, followed by growth of 9.3% to $273.0 million in 2019. (Source: “Nova Measuring Instruments Ltd. (NVMI),” Yahoo! Finance, last accessed October 1, 2018.)

Furthermore, Nova has been producing positive earnings before income, taxes, depreciation, and amortization (EBITDA) and profits.

The company’s EBITDA increased in three of the past four years, surging by 281.9% to $64.0 million in 2017.

Fiscal Year EBITDA (Millions) Growth
2013 $14.7
2014 $21.0 43.0%
2015 $25.1 19.6%
2016 $16.8 -33.2%
2017 $64.0 281.9%

(Source: MarketWatch, op cit.)

On a generally accepted accounting principles (GAAP) and adjusted basis, Nova Measuring Instruments has been consistently profitable, reporting a 365.7% improvement to $1.63 per diluted share in 2017.

Fiscal Year GAAP Diluted Earnings Per Share
2013 $0.38
2014 $0.67
2015 $0.57
2016 $0.35
2017 $1.63

(Source: MarketWatch, op cit.)

Looking ahead to full-year 2018, Nova Measuring is predicted to report an adjusted $1.92 per diluted share, versus $1.94 per diluted share in 2017. The growth is slated to return in 2019, when the company is estimated to report as much as $2.17 per diluted share. (Source: Yahoo! Finance, op cit.)

Based on its quarterly results, Nova Measuring Instruments has a good chance of beating the consensus earnings per share (EPS) estimates after beating the quarterly estimates in 14 straight quarters, dating back to the start of 2014.

Nova has also been producing positive free cash flow, which surged by 861.2% to $55.5 million in 2017.

Fiscal Year Free Cash Flow (Millions)
2013 $6.9
2014 $28.3
2015 $21.4
2016- -$7.3
2017 $55.5

(Source: MarketWatch, op cit.)

Analyst Take

The fundamentals and estimates support a higher price for Nova Measuring stock. It currently trades at an attractive 12.5-times its 2019 consensus EPS.

Given this, even if NVMI stock rallied 50%, the forward multiple would be reasonable for a technology company, and just above the multiple for the S&P 500.