Semiconductor quality control company Nova (NASDAQ: NVMI) announced better-than-expected results in Q1 CY2024, with revenue up 7.3% year on year to $141.8 million. On top of that, next quarter's revenue guidance ($148 million at the midpoint) was surprisingly good and 5.3% above what analysts were expecting. It made a non-GAAP profit of $1.39 per share, improving from its profit of $1.23 per share in the same quarter last year.

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

Nova (NVMI) Q1 CY2024 Highlights:

• Revenue: $141.8 million vs analyst estimates of $136.8 million (3.7% beat)

• EPS (non-GAAP): $1.39 vs analyst estimates of $1.28 (9% beat)

• Revenue Guidance for Q2 CY2024 is $148 million at the midpoint, above analyst estimates of $140.6 million

• Gross Margin (GAAP): 58.7%, in line with the same quarter last year

• Inventory Days Outstanding: 231, up from 209 in the previous quarter

• Free Cash Flow of $56.67 million, up 158% from the previous quarter

• Market Capitalization: $5.26 billion

"Our results this quarter exceeded the high end of the guidance we provided in revenue and profit, driven by increased demand for our state-of-the-art portfolio, and supported by a robust operational model," said Gaby Waisman, President and CEO.

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

Nova's revenue growth over the last three years has been strong, averaging 25.4% annually. But as you can see below, this quarter wasn't particularly strong, with revenue growing from $132.2 million in the same quarter last year to $141.8 million. 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).

While Nova beat analysts' revenue estimates, this was a sluggish quarter for the company as its revenue only grew 7.3% year on year. Nova's growth, however, flipped from negative to positive this quarter. This encouraging sign will likely be welcomed by shareholders.

Nova returned to positive revenue growth this quarter and its management team expects the trend to continue. The company is guiding to 20.6% year-on-year growth next quarter, and analysts seem to agree, forecasting 14.1% growth over the next 12 months.

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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 231, which is 50 days above its five-year average, suggesting that the company's inventory has grown to higher levels than we've seen in the past.

Key Takeaways from Nova's Q1 Results

We were impressed by how significantly Nova blew past analysts' EPS expectations this quarter. We were also glad next quarter's revenue guidance came in higher than Wall Street's estimates. On the other hand, its inventory levels materially increased. Overall, we think this was a strong quarter that should satisfy shareholders. The stock is up 2.4% after reporting and currently trades at $185.78 per share.

Nova may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.