Onto Innovation Inc (ONTO, Financial) has recently experienced a daily gain of 2.7% and a 3-month gain of 33.39%. With an Earnings Per Share (EPS) of 3.51, the stock's current valuation raises the question: is it significantly overvalued? This article aims to answer this question through a comprehensive valuation analysis of ONTO. Let's delve into the financial journey of Onto Innovation.
Company Introduction
Onto Innovation Inc is a key player in the design, development, manufacture, and support of high-performance control metrology, defect inspection, lithography, and data analysis systems. These systems are extensively used by microelectronics device manufacturers. With its major operations in the United States, Asia, and Europe, Onto Innovation's largest sources of revenue are China and South Korea.
Comparing the stock's price of $146.38 to its GF Value of $83.76, Onto Innovation appears to be significantly overvalued. Let's explore this valuation in more detail.
Understanding the GF Value
The GF Value is a proprietary valuation measure that provides an estimate of a stock's intrinsic value. It is calculated based on historical trading multiples, a GuruFocus adjustment factor considering the company's past performance and growth, and future business performance estimates.
The GF Value Line represents the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, the stock is likely overvalued, indicating potentially poor future returns. Conversely, if it is significantly below the GF Value Line, the stock may be undervalued, suggesting potentially higher future returns.
Currently, Onto Innovation's stock price significantly exceeds the GF Value Line, indicating that it is likely overvalued. With a market cap of $7.20 billion, the long-term return of Onto Innovation's stock is likely to be much lower than its future business growth.
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Financial Strength
Investing in companies with robust financial strength reduces the risk of permanent capital loss. Onto Innovation boasts a cash-to-debt ratio of 31.61, ranking better than 80.42% of 904 companies in the Semiconductors industry. Its overall financial strength is ranked 9 out of 10 by GuruFocus, indicating a strong financial position.
Profitability and Growth
Investing in profitable companies tends to be less risky, especially those demonstrating consistent profitability over the long term. Onto Innovation's profitability has been consistent over the past 10 years, with an operating margin of 19.43%, ranking better than 81.03% of 954 companies in the Semiconductors industry.
Company growth is a crucial factor in valuation. Onto Innovation's 3-year average annual revenue growth rate is 25.6%, ranking better than 78.15% of 874 companies in the Semiconductors industry. Its 3-year average EBITDA growth rate is 151.9%, which ranks better than 97.81% of 775 companies in the same industry.
ROIC vs. WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) offers another perspective on profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business, while WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. When ROIC is higher than WACC, the company is creating value for shareholders. For the past 12 months, Onto Innovation's ROIC is 14.48, and its WACC is 14.56.
Conclusion
In conclusion, Onto Innovation's stock appears to be significantly overvalued, despite its strong financial condition and profitability. Its growth ranks better than 97.81% of 775 companies in the Semiconductors industry. To learn more about Onto Innovation stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
