Novanta has been treading water for the past six months, recording a small return of 4.1% while holding steady at $138.70.

Given the underwhelming price action, is now a good time to buy NOVT? Or should investors expect a bumpy road ahead? Find out in our full research report, it’s free.

Why does Novanta spark debate?

Originally a pioneer in the laser scanning industry during the late 1960s, Novanta (NASDAQ: NOVT) offers medicine and manufacturing technology to the medical, life sciences, and manufacturing industries.

Two things to like:

1. Skyrocketing revenue shows strong momentum

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Luckily, Novanta’s sales grew at an impressive 10.7% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers.

2. Projected revenue growth is remarkable

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite, though some deceleration is natural as businesses become larger.

Over the next 12 months, sell-side analysts expect Novanta’s revenue to rise by 20.5%, an improvement versus its 10.7% annualized growth for the past five years. This projection is eye-popping and implies its newer products and services will spur better top-line performance.

One reason to be careful:

New investments fail to bear fruit as ROIC declines

ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

On average, Novanta’s ROIC decreased by 1.2 percentage points annually each year over the last few years. If its returns keep falling, it could suggest its profitable growth opportunities are drying up. We’ll keep a close eye.

Final judgment

Novanta’s positive characteristics outweigh the negatives. At $138.70 per share (or 34× forward P/E), is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.

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