Is Now The Time To Look At Buying Onto Innovation Inc. (NYSE:ONTO)?

Onto Innovation Inc. (NYSE:ONTO), might not be a large cap stock, but it saw a decent share price growth in the teens level on the NYSE over the last few months. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Let’s examine Onto Innovation’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Onto Innovation

What Is Onto Innovation Worth?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Onto Innovation’s ratio of 18x is trading slightly below its industry peers’ ratio of 18.3x, which means if you buy Onto Innovation today, you’d be paying a reasonable price for it. And if you believe Onto Innovation should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. So, is there another chance to buy low in the future? Given that Onto Innovation’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from Onto Innovation?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with a negative profit growth of -13% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Onto Innovation. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? Currently, ONTO appears to be trading around industry price multiples, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on ONTO, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on ONTO for a while, now may not be the most optimal time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystallize your views on ONTO should the price fluctuate below the industry PE ratio.

If you want to dive deeper into Onto Innovation, you'd also look into what risks it is currently facing. Case in point: We've spotted 1 warning sign for Onto Innovation you should be aware of.

If you are no longer interested in Onto Innovation, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.