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Semiconductor quality control company Nova (NASDAQ:NVMI) reported Q4 CY2024 results beating Wall Street’s revenue expectations , with sales up 45.1% year on year to $194.8 million. On top of that, next quarter’s revenue guidance ($210 million at the midpoint) was surprisingly good and 10.6% above what analysts were expecting. Its non-GAAP profit of $1.94 per share was 6.6% above analysts’ consensus estimates.

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

Nova (NVMI) Q4 CY2024 Highlights:

• Revenue: $194.8 million vs analyst estimates of $186.2 million (45.1% year-on-year growth, 4.6% beat)

• Adjusted EPS: $1.94 vs analyst estimates of $1.82 (6.6% beat)

• Adjusted Operating Income: $64 million vs analyst estimates of $58.18 million (32.9% margin, 10% beat)

• Revenue Guidance for Q1 CY2025 is $210 million at the midpoint, above analyst estimates of $189.9 million

• Adjusted EPS guidance for Q1 CY2025 is $2.08 at the midpoint, above analyst estimates of $1.86

• Operating Margin: 28.5%, up from 25.1% in the same quarter last year

• Free Cash Flow Margin: 31%, up from 16.4% in the same quarter last year

• Inventory Days Outstanding: 168, down from 189 in the previous quarter

• Market Capitalization: $7.13 billion

"Nova continues to outperform the market, with quarterly and annual sales records which exceeded the high end of the guidance in both revenue and profitability," 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

A company’s long-term sales performance signals its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, Nova’s sales grew at an incredible 24.5% compounded annual growth rate over the last five years. Its growth surpassed the average semiconductor company and shows its offerings resonate with customers, a great starting point for our analysis. 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).

Long-term growth is the most important, but short-term results matter for semiconductors because the rapid pace of technological innovation (Moore's Law) could make yesterday's hit product obsolete today. Nova’s annualized revenue growth of 8.5% 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 magnificent year-on-year revenue growth of 45.1%, and its $194.8 million of revenue beat Wall Street’s estimates by 4.6%. Company management is currently guiding for a 48.1% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 14.7% over the next 12 months, an improvement versus the last two years. This projection is noteworthy and indicates its newer products and services will spur better top-line performance.

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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 168, which is 15 days below its five-year average. At the moment, these numbers show no indication of an excessive inventory buildup.

Key Takeaways from Nova’s Q4 Results

We were impressed by Nova’s strong improvement in inventory levels. We were also excited its adjusted operating income outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this quarter featured some important positives. The stock traded up 5% to $258 immediately after reporting.

Indeed, Nova had a rock-solid quarterly earnings result, but is this stock a good investment here? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.