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Onto Innovation Stock Up 19% in Past Six Months: Is it Time to Buy?
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Onto Innovation’s (ONTO - Free Report) stock has gained 18.5% in the past six months, outperforming its sub-industry, the Zacks Computer and Technology sector and the S&P 500 composite’s growth of 17.4%, 16.5% and 15.9%, respectively.
Six-Month Price Performance Chart
Image Source: Zacks Investment Research
Headquartered in Wilmington, MA, ONTO specializes in the design, development, manufacture and support of metrology and inspection tools, primarily for semiconductor device fabricators, silicon wafer manufacturers and advanced packaging manufacturers in the semiconductor space.
Strengthening top-line performance and emerging new business opportunities are aiding the stock’s trajectory. ONTO outpaced estimates in each of the trailing four quarters, with the average surprise being 6.6%.
ONTO stock gained 3.3% in the last trading session and closed at $224.94. The stock is trading 5.9% below its 52-week high of $238.93, reached on July 16, 2024. ONTO also trades above its 100 and 200-day moving averages.
Image Source: Zacks Investment Research
As ONTO hovers near its 52-week high, investors are now most likely contemplating whether to stay invested or cash out. Let us dive into ONTO’s prospects and determine the best course of action for your portfolio.
Can ONTO Stock Continue its Upward Trajectory?
Onto Innovation’s performance is gaining from increasing demand for its Dragonfly inspection system. Its Dragonfly G3 platform integrates 2D and 3D technologies to identify yield-killing defects and compute features, which are important for advanced front-end and packaging technologies. This system is witnessing strong adoption owing to higher demand for advanced packaging of AI-computing devices.
In the last reported quarter, total revenues of $242.3 million beat the Zacks Consensus Estimate by 2.9%. The top line expanded 27.1% year over year. Revenues surpassed the high end of the company’s guided range of $230-$240 million.
Image Source: Zacks Investment Research
The uptick was largely driven by the expansion of pilot lines for high-performance computing, which incorporates cutting-edge gate-all-around transistor architecture and high-bandwidth memory to support the growing demand in the AI sector. Management highlighted record revenues of $164 million from its specialty and advanced packaging customers. This growth was driven by demand from the company’s AI-packaging customers.
Healthy momentum in advanced nodes sales was driven by the success of ONTO’s Atlas and Iris systems. These systems are pivotal in supporting emerging gate-all-around devices.
In the last reported quarter, ONTO secured more than $300 million in volume purchase agreements from two major customers. These agreements, which extend through 2025, pertain to investments in AI advanced packaging and gate-all-around technologies. All these developments are likely to drive the financial performance and propel the stock trajectory further.
ONTO's Confidence in Business Reflected in Outlook
For the third quarter, management expects revenues in the range of $245-$255 million. For the second half of 2024, it now expects revenues to be 5-10% stronger than the first half. ONTO expects revenues to gain from increasing investments in gate-all-around capacity and capacity expansions by several high-bandwidth memory and logic packaging manufacturers in 2025.
The company remains focused on inventory reduction to boost cash-flow performance. Improvements in supply-chain initiatives are expected to drive margin performance.
However, the weak global macroeconomic backdrop, forex fluctuations and fierce competition are concerns for the company. Increasing expenses is likely to weigh on its margin’s performance. For the third quarter of 2024, it expects operating expenses in the range of $64-$66 million amid higher research and development expenses.
Estimate Revision Activity for ONTO
In the past 60 days, analysts have increased their earnings estimates for the current quarter by 2.3%, whereas estimates for the next quarter remain unchanged. The earnings estimate for the current and the next year has been revised upward by 1.4% and 2.7%, respectively.
Image Source: Zacks Investment Research
ONTO’s Expensive Valuation
ONTO stock is trading at a premium, with a forward 12-month Price/earnings multiple of 36.55 compared with the industry’s multiple of 7.2.
Image Source: Zacks Investment Research
Is It a Good Time to Invest in ONTO Stock?
Strength in the Dragonfly system and emerging business opportunities, driven by higher demand for advanced packaging of AI computing devices, bodes well for ONTO. Though its premium valuation may raise eyebrows, we believe that ONTO’s focus on process control makes it well-positioned to capitalize on almost every aspect of the semiconductor industry, including 5G, 3D NAND and advanced packaging. The industry's transition to 3D NAND should help the company to further expand the available market.
Consequently, investors should keep an eye on this Zacks Rank #2 (Buy) stock. Apart from a favorable rank, ONTO has a Growth Score of B. Per Zacks’ proprietary methodology, stocks with a combination of a Zacks Rank #1 (Strong Buy) or 2 and a Growth Score of A or B offer solid investment opportunities.
The Zacks Consensus Estimate for ITRI’s 2024 EPS is pegged at $4.58, unchanged in the past seven days. Itron’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 57%. The stock has surged 87.4% in the past year.
The Zacks Consensus Estimate for NTAP’s fiscal 2025 earnings is pegged at $7.08, unchanged in the past seven days. NTAP’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 8.6%. Its shares have gained 67% in the past year.
The Zacks Consensus Estimate for BlackBerry’s fiscal 2025 EPS is pegged at a loss of 2 cents, improved from a loss of 5 cents in the past seven days. BB’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 131.3%. Its shares have declined 32.9% in the past year.
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Onto Innovation Stock Up 19% in Past Six Months: Is it Time to Buy?
Onto Innovation’s (ONTO - Free Report) stock has gained 18.5% in the past six months, outperforming its sub-industry, the Zacks Computer and Technology sector and the S&P 500 composite’s growth of 17.4%, 16.5% and 15.9%, respectively.
Six-Month Price Performance Chart
Image Source: Zacks Investment Research
Headquartered in Wilmington, MA, ONTO specializes in the design, development, manufacture and support of metrology and inspection tools, primarily for semiconductor device fabricators, silicon wafer manufacturers and advanced packaging manufacturers in the semiconductor space.
Strengthening top-line performance and emerging new business opportunities are aiding the stock’s trajectory. ONTO outpaced estimates in each of the trailing four quarters, with the average surprise being 6.6%.
ONTO stock gained 3.3% in the last trading session and closed at $224.94. The stock is trading 5.9% below its 52-week high of $238.93, reached on July 16, 2024. ONTO also trades above its 100 and 200-day moving averages.
Image Source: Zacks Investment Research
As ONTO hovers near its 52-week high, investors are now most likely contemplating whether to stay invested or cash out. Let us dive into ONTO’s prospects and determine the best course of action for your portfolio.
Can ONTO Stock Continue its Upward Trajectory?
Onto Innovation’s performance is gaining from increasing demand for its Dragonfly inspection system. Its Dragonfly G3 platform integrates 2D and 3D technologies to identify yield-killing defects and compute features, which are important for advanced front-end and packaging technologies. This system is witnessing strong adoption owing to higher demand for advanced packaging of AI-computing devices.
In the last reported quarter, total revenues of $242.3 million beat the Zacks Consensus Estimate by 2.9%. The top line expanded 27.1% year over year. Revenues surpassed the high end of the company’s guided range of $230-$240 million.
Image Source: Zacks Investment Research
The uptick was largely driven by the expansion of pilot lines for high-performance computing, which incorporates cutting-edge gate-all-around transistor architecture and high-bandwidth memory to support the growing demand in the AI sector. Management highlighted record revenues of $164 million from its specialty and advanced packaging customers. This growth was driven by demand from the company’s AI-packaging customers.
Healthy momentum in advanced nodes sales was driven by the success of ONTO’s Atlas and Iris systems. These systems are pivotal in supporting emerging gate-all-around devices.
In the last reported quarter, ONTO secured more than $300 million in volume purchase agreements from two major customers. These agreements, which extend through 2025, pertain to investments in AI advanced packaging and gate-all-around technologies. All these developments are likely to drive the financial performance and propel the stock trajectory further.
ONTO's Confidence in Business Reflected in Outlook
For the third quarter, management expects revenues in the range of $245-$255 million. For the second half of 2024, it now expects revenues to be 5-10% stronger than the first half. ONTO expects revenues to gain from increasing investments in gate-all-around capacity and capacity expansions by several high-bandwidth memory and logic packaging manufacturers in 2025.
The company remains focused on inventory reduction to boost cash-flow performance. Improvements in supply-chain initiatives are expected to drive margin performance.
However, the weak global macroeconomic backdrop, forex fluctuations and fierce competition are concerns for the company. Increasing expenses is likely to weigh on its margin’s performance. For the third quarter of 2024, it expects operating expenses in the range of $64-$66 million amid higher research and development expenses.
Estimate Revision Activity for ONTO
In the past 60 days, analysts have increased their earnings estimates for the current quarter by 2.3%, whereas estimates for the next quarter remain unchanged. The earnings estimate for the current and the next year has been revised upward by 1.4% and 2.7%, respectively.
Image Source: Zacks Investment Research
ONTO’s Expensive Valuation
ONTO stock is trading at a premium, with a forward 12-month Price/earnings multiple of 36.55 compared with the industry’s multiple of 7.2.
Image Source: Zacks Investment Research
Is It a Good Time to Invest in ONTO Stock?
Strength in the Dragonfly system and emerging business opportunities, driven by higher demand for advanced packaging of AI computing devices, bodes well for ONTO. Though its premium valuation may raise eyebrows, we believe that ONTO’s focus on process control makes it well-positioned to capitalize on almost every aspect of the semiconductor industry, including 5G, 3D NAND and advanced packaging. The industry's transition to 3D NAND should help the company to further expand the available market.
Consequently, investors should keep an eye on this Zacks Rank #2 (Buy) stock. Apart from a favorable rank, ONTO has a Growth Score of B. Per Zacks’ proprietary methodology, stocks with a combination of a Zacks Rank #1 (Strong Buy) or 2 and a Growth Score of A or B offer solid investment opportunities.
Other Stocks to Consider
Some other top-ranked stocks worth consideration in the broader technology space are Itron (ITRI - Free Report) , NetApp (NTAP - Free Report) and BlackBerry (BB - Free Report) , each currently sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for ITRI’s 2024 EPS is pegged at $4.58, unchanged in the past seven days. Itron’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 57%. The stock has surged 87.4% in the past year.
The Zacks Consensus Estimate for NTAP’s fiscal 2025 earnings is pegged at $7.08, unchanged in the past seven days. NTAP’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 8.6%. Its shares have gained 67% in the past year.
The Zacks Consensus Estimate for BlackBerry’s fiscal 2025 EPS is pegged at a loss of 2 cents, improved from a loss of 5 cents in the past seven days. BB’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 131.3%. Its shares have declined 32.9% in the past year.