Over the past six months, Novanta’s shares (currently trading at $131.52) have posted a disappointing 10.8% loss, well below the S&P 500’s 6.9% gain. This may have investors wondering how to approach the situation.

Is now the time to buy Novanta, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Is Novanta Not Exciting?

Despite the more favorable entry price, we don't have much confidence in Novanta. Here are three reasons why you should be careful with NOVT and a stock we'd rather own.

1. Lackluster Revenue Growth

Long-term growth is the most important, but within industrials, a stretched historical view may miss new industry trends or demand cycles. Novanta’s recent performance shows its demand has slowed as its annualized revenue growth of 4.2% over the last two years was below its five-year trend. We also note many other Electronic Components businesses have faced declining sales because of cyclical headwinds. While Novanta grew slower than we’d like, it did do better than its peers.

2. EPS Growth Has Stalled Over the Last Two Years

While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.

Novanta’s flat EPS over the last two years was worse than its 4.2% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.

3. Free Cash Flow Margin Dropping

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

As you can see below, Novanta’s margin dropped by 7.5 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Novanta’s free cash flow margin for the trailing 12 months was 15%.

Final Judgment

Novanta isn’t a terrible business, but it doesn’t pass our quality test. After the recent drawdown, the stock trades at 26.1× forward EV-to-EBITDA (or $131.52 per share). This valuation tells us a lot of optimism is priced in - you can find more timely opportunities elsewhere. We’d suggest looking at one of our top software and edge computing picks.

Stocks We Would Buy Instead of Novanta

The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.

While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.

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