Nova: A New Trend May Have Presented Itself

seekingalpha11-20

The latest report came in strong, as did guidance, but the stock could not break out of the downward spiral it seems to be in.The charts suggest the stock may be able to find support that could power ...

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nNova: A New Trend May Have Presented Itself\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-20 06:56 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4738816-nova-a-new-trend-may-have-presented-itself><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>The latest report came in strong, as did guidance, but the stock could not break out of the downward spiral it seems to be in.The charts suggest the stock may be able to find support that could power ...</p>\n\n<a href=\"https://seekingalpha.com/article/4738816-nova-a-new-trend-may-have-presented-itself\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4147","symbol_name":"半导体设备","start_time":0,"source_url":"https://seekingalpha.com/article/4738816-nova-a-new-trend-may-have-presented-itself","article_id":"2484318885","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1171481197/image_1171481197.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2484318885","pubTimestamp":1732057018,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"It is worth noting that Nova might be in a downtrend. Note how in the previous chart two descending trendlines connect the lower lows and lower highs respectively. This points in the direction of lower prices for Nova. At the same time, the stock is currently at the boundary of the lower trendline, which suggests a bounce is possible in the short term if the recent trend holds. Source: Thinkorswim app It’s also worth mentioning that the stock is close to a Fibonacci retracement level, which may provide additional, if temporary, support. Recall how the high of $247.21 in July 2024 was the culmination of a long move upwards in the stock that started in October 2022 with a low of $67.40, as shown in the chart above. If we assume the decline following the July high is a retracement of the aforementioned move, then the 38.2% Fibonacci retracement of $67.40 to","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4147":"半导体设备","NVMI":"Nova Ltd","SG9999000418.SGD":"Aberdeen Standard Global Technology SGD","LU0278937759.USD":"abrdn SICAV I - EMERGING MARKETS SMALLER COMPANIES\"A\" (USD) ACC"},"translate_title":"Nova：新趋势可能已经出现","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"NVMI":0.9},"content_text":"The latest report came in strong, as did guidance, but the stock could not break out of the downward spiral it seems to be in.The charts suggest the stock may be able to find support that could power a turnaround given the past, but the stock would need to move lower first.Nova has a shot at a strong FY2025 in terms of the top and the bottom line, but there is some uncertainty associated with this outlook.Long Nova has its strengths, but one cannot set aside the way the stock has been going down, something likely to continue in the short term.   Olivier Le Moal  Nova (NASDAQ:NVMI), a supplier of metrology and process control tools for the semiconductor industry, released a strong Q3 FY2024 report last week with better than expected guidance. While it is still early, the outlook for FY2025 suggests next year could be even better than FY2024. However, the stock seems to have shrugged it off because the stock continues to move lower. Why will be covered next. Why a new trend could be in effect A previous article from early September noted how Nova appeared to trade in close correlation with the leading AI play if the charts were anything to go by. The latter had done very well for quite some time by leading the semiconductor sector higher on the back of AI. Nova went along for the ride since metrology is expected to become increasingly important for AI. However, the leading AI play encountered difficulties, which made their way back to the stock. If the leading AI play was struggling, then there was reason to believe Nova, or its stock to be more exact, could also be adversely impacted due to the correlation between the two. As a consequence, the article rated Nova a hold. Source: Thinkorswim app The chart above shows how the stock was on fire until mid-July, but that changed in the months that followed. In fact, after hitting a 2024 and 52-weeks high of $247.21 on July 10, the stock has gradually declined as shown by the series of lower highs. Nova is nonetheless up 30% YTD after the stock closed at $178.67 on November 15, thanks to gains in the early part of 2024. Where might the stock be heading? It is worth noting that Nova might be in a downtrend. Note how in the previous chart two descending trendlines connect the lower lows and lower highs respectively. This points in the direction of lower prices for Nova. At the same time, the stock is currently at the boundary of the lower trendline, which suggests a bounce is possible in the short term if the recent trend holds. Source: Thinkorswim app It’s also worth mentioning that the stock is close to a Fibonacci retracement level, which may provide additional, if temporary, support. Recall how the high of $247.21 in July 2024 was the culmination of a long move upwards in the stock that started in October 2022 with a low of $67.40, as shown in the chart above. If we assume the decline following the July high is a retracement of the aforementioned move, then the 38.2% Fibonacci retracement of $67.40 to $247.21 is $178.52. This is $0.15 below the most recent close of $178.67 on November 15. A bounce is not guaranteed, but these two factors combined could help enable a bounce in the short term. Yet even if the stock bounces, the downwards sloping trend would still be in effect. The stock could continue to go lower following a bounce, in line with the trend of the past several months. If the stock gets by the 38.2% Fibonacci retracement, then the next or 50% Fibonacci retracement can be found at $157.31. The significance here is that this is close to a price region where Nova has been able to turn it around on more than one instance. For instance, the drop following the July peak ended once the stock hit a low of $158.00 on August 5, as shown in the prior chart, which is $0.69 above the aforementioned Fibonacci retracement at $157.31. It’s also close to the April low of $158.48, which, like the August low, was followed by a sizable move upwards in the stock. If this pattern holds, Nova may have a good shot at stemming the decline in the stock should it get close to $157.31. If the stock was able to recover at least twice before close to this price point, then it may happen a third time. Keep in mind support can be breached if there is a catalyst out there. It is not impossible for the stock to fall below $157.31. Nova continues to perform The weakness in the stock in recent months after the strong run earlier in the year may be baffling to some, considering that Nova continues to execute well when it comes to growing the top and the bottom line. Yet, as mentioned earlier, the latest report was unable to stem the slide in the stock even though the numbers were better than expected. Both the Q3 FY2024 results and Q4 FY2024 guidance surpassed expectations. The consensus expected Nova to report non-GAAP EPS of $1.68 on revenue of $171M, but Nova earned $1.74, or $0.06 more than expected, on revenue of $178.97M, a new record high. Nova finished the quarter with cash, cash equivalents, short-term bank deposits and marketable securities totaling $601.1M, partially offset by total debt of $241.3M on the balance sheet. The table below shows why Q3 FY2024 was a record quarter.  (Unit: $1000, except for EPS)  (GAAP) Q3 FY2024 Q2 FY2024 Q3 FY2023 QoQ YoY   Revenue 178,974 156,858 128,808 14.10% 38.95%   Gross margin 57% 59% 56% (200bps) 100bps   Operating margin 28% 29% 27% (100bps) 100bps   Operating income 49,231 45,618 34,148 7.92% 44.17%   Net income 51,279 45,142 33,689 13.60% 52.21%   EPS 1.60 1.41 1.06 13.48% 50.94%   (Non-GAAP)             Revenue 178,974 156,858 128,808 14.10% 38.95%   Gross margin 58% 61% 58% (300bps) -   Operating margin 32% 34% 31% (200bps) 100bps   Operating income 56,892 53,353 40,196 6.63% 41.54%   Net income 56,056 51,956 39,405 7.89% 42.26%   EPS 1.74 1.61 1.23 8.08% 41.46%   Click to enlarge Source: Nova The consensus expected $1.69 on revenue of $177.8M, but guidance calls for non-GAAP EPS of $1.72-1.92 on revenue of $181-191M in Q4 FY2024. Using this guidance, Nova is projected to earn $6.56 on revenue of $663.6M by the end of FY2024. This would give Nova a P/E ratio of 27.2x with a stock price of $178.67. In comparison, Nova earned $4.86 on revenue of $517.9M in FY2023.     Q4 FY2024 (guidance) Q3 FY2023 YoY (midpoint)   Revenue $181-191M $134.2M 38.60%   GAAP EPS $1.51-1.70 $1.20 33.75%   Non-GAAP EPS $1.72-1.91 $1.36 33.46%   Click to enlarge Source: Nova What could FY2025 be like for Nova? Guidance did not extend into next year, but Nova added some color as to its outlook for FY2025. From the Q3 earnings call: “As we now have more clarity on our performance in 2024, I want to share some thoughts on next year. We see robust demand from leading edge manufacturing including advanced packaging and expected to manifest in our 2025 performance. Nova benefits from long-term trends driving the need for semiconductors and the substantial investment in wafer fabrication equipment. We persist with our long-term strategy and are confident in executing our plans. We expect WFE growth in 2025 to be higher than this year and we also anticipate it will be another growth year for Nova.” Source: Nova earnings call Growth forecasts for the wafer fab equipment market vary, but the general expectation is that 2025 will be better than 2024. If we then assume the WFE market grows by 10% YoY in 2025 and we assume Nova outperforms the WFE market on average by 1:1.5, then FY2025 revenue is estimated to increase by 15% to $763.1M, assuming FY2024 revenue ends up at $663.6M. Note that there are forecasts out there that call for the WFE market to grow by much more than 10%. If we then assume net margin stays where it is or 31.3% as of Q3, then net income would come in at $238.9M, or about $8.19 a share, assuming the total number of shares is 29.18M. Apply a multiple of 28x, the average in the last five years, then that gets you a stock price of $229.32, about 28.3% above where it currently trades at. What seems to be causing problems for Nova? Yet in spite of all the above, the stock has done poorly since mid-July. Nova has lost about 27.7% of its market cap since the July high. Something changed in July and a closer look at the previous charts suggests it happened on July 17 when the stock fell by 13.2% in one day. Nova has not been the same since. The drop on July 17 occurred after reports surfaced the U.S. government was considering imposing new trade rules to rein in China’s semiconductor industry. This could be accomplished by limiting the equipment needed to manufacture chips, including presumably metrology and process control tools from companies like Nova. China accounted for 36% of FY2023 sales at Nova, so Nova could definitely be adversely affected if there are limits on sales to China. A number of equipment suppliers have recently stated they expect sales in China to decline significantly in 2025. In fact, some have gone as far as to put the decline at up to 30%. Nova has yet to state something similar and Nova has said it expects sales in China to remain strong. Still, the fact remains China has become a much larger contributor to total sales in recent years. For instance, China contributed 21% to total revenue in FY2021, or 15 percentage points below where it stood two years later in FY2023. If sales were to decline to their average of around 20%, then Nova could see a 16 points drop in contributions from China. If bumper sales in China were the result of China pulling forward sales, then the drop could be even higher, possibly in the 30+ range. This has created a level of uncertainty for Nova, which likely has weighed on the stock in recent months. The fact that the stock has yet to recover from the blow in mid-July suggests as much. Investor takeaways If circumstances were different, Nova would very likely have done much better in the second half of 2024 than it has. The stock might not show it, but Nova is actually on a record-breaking streak in terms of growth in the top and the bottom line. Nova broke the record in the Q3 FY2024 report and guidance calls for a new record in Q4 FY2024. The fundamentals are still there for Nova. Demand for high-performance computing remains strong, especially due to AI. This encourages chip designers to make the transition towards more complex designs packing more and more transistors within a die. The increased complexity places a higher burden on metrology, something companies like Nova can benefit from. The use of GAAFETs, for instance, are likely to increase demand for Nova. However, while the fundamentals are solid and earnings growth has been strong, there is no denying the weakness in the stock. The stock might be in a downtrend if the charts are anything to go by. The stock may be able to find support that has a good shot at holding, but the stock would have to trade lower before support can be in position to stem the decline that has been going on since mid-July. The root cause for this decline seems to be concerns as to what impact trade limits could have on Nova. It is probably no coincidence the rally in the stock came to an end when it became known there might be trade limits on Nova’s biggest market, to be replaced by a stock in decline. This seems to have negated any push the stock may have gotten from strong earnings and guidance. Long Nova deserves consideration with growth coming in strong, but I am neutral on Nova. Nova is doing very well, which might have been enough to argue in favor of long Nova under different circumstances. Alas, the stock’s weak performance and the likelihood of further losses is something that cannot be ignored. While some may want to bet on the fundamentals, there is a risk associated with doing so at this time. To jump in on a stock that has been going down for months and could very well go down more could be a case of trying to catch a falling knife.  In the end, Nova is certainly a stock worth keeping an eye on, especially with the way earnings have been going up, but the stock needs to regain its footing first. It may happen once the stock gets to a level where it has been able to turn it around before more than once. That has yet to happen, and it is probably better to wait until it does.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2484318885"}