Here's Why We Think Novanta (NASDAQ:NOVT) Is Well Worth Watching

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Novanta (NASDAQ:NOVT). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

See our latest analysis for Novanta

Novanta's Earnings Per Share Are Growing

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Shareholders will be happy to know that Novanta's EPS has grown 21% each year, compound, over three years. As a result, we can understand why the stock trades on a high multiple of trailing twelve month earnings.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. While we note Novanta achieved similar EBIT margins to last year, revenue grew by a solid 17% to US$876m. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Novanta?

Are Novanta Insiders Aligned With All Shareholders?

Owing to the size of Novanta, we wouldn't expect insiders to hold a significant proportion of the company. But we are reassured by the fact they have invested in the company. With a whopping US$62m worth of shares as a group, insiders have plenty riding on the company's success. This would indicate that the goals of shareholders and management are one and the same.

Should You Add Novanta To Your Watchlist?

For growth investors, Novanta's raw rate of earnings growth is a beacon in the night. With EPS growth rates like that, it's hardly surprising to see company higher-ups place confidence in the company through continuing to hold a significant investment. Fast growth and confident insiders should be enough to warrant further research, so it would seem that it's a good stock to follow. Even so, be aware that Novanta is showing 1 warning sign in our investment analysis , you should know about...

The beauty of investing is that you can invest in almost any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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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.