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Does Novanta Inc.’s (NASDAQ:NOVT) 28% Earnings Growth Reflect The Long-Term Trend?

Simply Wall St

After reading Novanta Inc.’s (NASDAQ:NOVT) latest earnings update (31 December 2018), I found it beneficial to look back at how the company has performed in the past and compare this against the most recent numbers. As a long-term investor I tend to pay attention to earnings trend, rather than a single number at one point in time. I also like to compare against an industry benchmark to understand whether NOVT has outperformed, or whether it is simply riding an industry wave. Below is a brief commentary on my key takeaways.

See our latest analysis for Novanta

How Did NOVT’s Recent Performance Stack Up Against Its Past?

NOVT’s trailing twelve-month earnings (from 31 December 2018) of US$51m has jumped 28% compared to the previous year.

However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 34%, indicating the rate at which NOVT is growing has slowed down. What could be happening here? Well, let’s examine what’s occurring with margins and if the entire industry is facing the same headwind.

NasdaqGS:NOVT Income Statement, March 18th 2019

In terms of returns from investment, Novanta has fallen short of achieving a 20% return on equity (ROE), recording 14% instead. However, its return on assets (ROA) of 8.4% exceeds the US Electronic industry of 7.1%, indicating Novanta has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Novanta’s debt level, has increased over the past 3 years from 10% to 13%.

What does this mean?

Though Novanta’s past data is helpful, it is only one aspect of my investment thesis. Companies that have performed well in the past, such as Novanta gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. I suggest you continue to research Novanta to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for NOVT’s future growth? Take a look at our free research report of analyst consensus for NOVT’s outlook.
  2. Financial Health: Are NOVT’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 31 December 2018. This may not be consistent with full year annual report figures.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.