NANO Stock Forecast: Stock Skyrockets as It Surpasses Expectations

 

This article was written by Julia Masch, a Financial Analyst at I Know First.

 

“Our outlook for 2018 has strengthened since last quarter, both in terms of revenue growth and profitability. Our greater market share, higher revenue volume, and increased gross margin are enabling us to make investments in R&D and our global sales organization in support of future growth, while delivering strong profits and cash flows.”

– Pierre-Yves Lesaicherre, president and CEO of Nanometrics

(Source: Wikimedia Commons)

Highlights:

  • Strong Q1 brings high expectations for 2018
  • What’s next for Nanometrics?
  • Current Bullish I Know First For NANO

Nanometrics Inc. (NASDAQ: NANO) produces advanced, high-performance process control metrology and inspection systems used primarily with or in the production of semiconductors and other solid-state devices. Over the past year and month especially, NANO has seen large gains of 38.26% and 55.11% respectively. The stock surged on May 1 after the release of an extremely strong Q1 2018 earnings report.

Starting Off Q1 2018 Strong

Nanometrics has had a spectacular start to its 2018 fiscal year with record revenues, earnings per share, and gross margin. Revenues increased to $82.3, which was well above expectations and the highest the company has ever had. This revenue was a 5.5% increase from Q4 2017 and a 38.8% increase YoY. On a GAAP and non-GAAP basis, earnings per diluted share (EPS) improved to $0.67. This was a 60% increase from last quarter and a whopping 223% increase YoY.

On top of these impressive results, gross margin increased to ~57.8%, a gain of almost 10% from the year before. The better gross margin was the result of a reduction in operating costs from a greater quantity of software sales (which has lower operating costs). These decreased operating costs also led to an greater cash flow. These remarkable numbers were the results of a growing business environment, strong relationships with large clients, new customers, and more.  

(Source: Ycharts)

What’s Next for NANO?

In its Q1 report, Nanometrics also explained the company purchased $23 million of stock in order to accomplish its goal of buying back $50 million in stocks which they launched in November 2017. This repurchasing shows the company’s confidence in itself and future profitability. Looking ahead, NANO expects to continue its 5 year trend of profitable growth.

Nanometrics expects Q2 revenues between $82-90 million which leaves room for continued growth in revenue. Additionally, NANO plans to increase their R&D spending to invest in software, hardware, data analytics and more. They are also planning multi-year investments on new product platforms that will ideally generate revenue in the long run. The 20% YoY increase in R&D will allow Nanometrics to stay ahead of its competitors and work on new products to sell.

The Memory Segment

Additionally, the market for memory such as 3D NAND and DRAM (dynamic random access memory) is only growing and Nanometrics’ products and services are complementary and will drive revenue for NANO. Nanometrics currently has an extremely strong position in the 3D NAND market. Demand for both of these memory solutions increased in Q1 2018 and will continue to grow at an even greater rate throughout the year which will translate to increased sales and revenue. In Q1 2018, 3D NAND was the biggest portion of sales and DRAM was the second. NAND comprised 50% of product revenue while DRAM made up 39%. Both of these will continue to increase revenue as quantity of NAND needed by producers increases. While NAND is first, DRAM will also remain significant as there is a higher attachment between increased DRAM and specific customer installation, which Nanometrics is an industry leader in. DRAM demand has already made massive strides: Q1 DRAM revenue in South Korea in was almost equivalent to DRAM revenue for the entire year prior. The increasing market space for memory will only aid in NANO’s success.

Image result for dramA simple DRAM (Source: Wikimedia Commons)

Competing in China

For the upcoming year, a large part of this growth in revenue attributed to NAND will be dependent on winning market share, particularly in China. Nanometrics already has a strong standing in China and just recently made a deal with a large domestic 3D NAND manufacturer which has already begun to impact revenue and will continue to on an even larger scale in the upcoming quarters. As the 3D NAND fab in China grows, manufacturers will require more services which will translate to greater volume of sales from Nanometrics. Growth in China is not dependent only on the memory market; NANO recently closed big deals on new accounts with companies such as Innotron, XMC, HIDM. Moreover, the company already has a large customer base in China. Last quarter, management said they expected revenue in China, which was 12% in 2017, to double in 2018. However, they have already amended this statement and in light of the trends in the memory market expect to surpass doubled Chinese revenue YoY.

Technical Analysis

Thanks to the large bounce in stock price that occurred after the Q1 2018 earnings report, the stock price has jumped above the 50 day simple moving average of NANO. This indicates a bullish outlook for the stock.

Analyst Recommendations

(Source: Yahoo Finance)

Analyst recommendations for NANO are strong with 50% choosing a strong buy, 25% opting to buy, and 25% sticking at hold.

Current I Know First Bullish Forecast for NANO

In line with the bullish trends shown in my analysis, the I Know First algorithm also currently has a bullish forecast for Nanometrics with a signal of 42.71, 59.56, and 265.31 for the 1 month, 3 month, and 1 year time frames respectively.

These forecasts also have high predictability signals with a 1 month predictability greater than 0.3 and 6 month and 1 year predictability signals greater than 0.5. 

Go here to read how to interpret this diagram.

Conclusion

Going off an exceptional start to the year, I expect Nanometrics to continue increasing its revenue as the memory market expands and as the company continues to develop its business in China. Moreover, with greater funds devoted to R&D in 2018, Nanometrics will be able to evolve its services and products and keep its large market share in the competitive optical critical dimension space. Additionally, it is clear the company is confident in its prospects with its completion of a $50 million stock buyback program. On top of this, my technical analysis shows a bullish momentum for NANO which also corresponds with the I Know First algorithm current bullish forecast for NANO. All of these factors lead me to recommend NANO as a stock for investors in the long and short run.

Past I Know First Forecast Success With NANO

In this forecast posted on April 8, 2018, the I Know First algorithm gave NANO a bullish signal of 8.37 with a predictability of .46 for a one month time period. Over a month, NANO gains 41.05% in accordance with the prediction.

Current I Know First subscribers received this bullish NANO  forecast on April 8, 2018.

Please note-for trading decisions use the most recent forecast. Get today’s forecast and Top stock picks.