ONTO INNOVATION INC (NYSE:ONTO) Presents a Compelling Case as an Affordable Growth Stock

The search for growth stocks trading at reasonable valuations represents a core strategy for many investors seeking to balance opportunity with prudence. This approach, often termed Growth At a Reasonable Price (GARP) or affordable growth, targets companies demonstrating strong expansion prospects without the extreme valuations that can heighten risk. One systematic method to find such candidates is by using a stock screener that filters for strong fundamental ratings. A security selected through this process, focusing on high growth, profitability, and financial health scores alongside a reasonable valuation, is ONTO INNOVATION INC (NYSE:ONTO).

Growth Trajectory

A cornerstone of the affordable growth strategy is finding companies with a proven and projected strong growth path. ONTO Innovation shows exactly this characteristic, earning a high Growth Rating of 8 out of 10. The company's historical performance and future expectations reveal a strong growth story.

• Earnings Per Share (EPS) has grown by an impressive 24.12% over the past year, with a high three-year average annual growth rate of 36.96%.
• Revenue has also expanded with strength, increasing by 15.51% in the last year and by an average of 26.41% annually over the past three years.
• Looking forward, analysts project continued strength with an expected average annual EPS Growth of 15.71% and Revenue Growth of 13.58%.

This consistent and solid growth is critical for the GARP strategy, as it provides the fundamental "growth" engine that investors are seeking, justifying investment while the valuation remains accessible.

Valuation Assessment

The "reasonable price" component is what separates this strategy from pure growth chasing. ONTO Innovation's Valuation Rating of 5 indicates it is not overvalued, especially when contextualized within its industry. While some absolute metrics appear elevated, comparative analysis paints a different picture.

• The company's Price/Earnings (P/E) ratio of 23.89 is cheaper than 82% of its peers in the Semiconductors & Semiconductor Equipment industry.
• Its Price/Free Cash Flow ratio is also attractive, ranking cheaper than 83% of industry competitors.
• When compared to the broader S&P 500 index, which has an average P/E of 27.42, ONTO's valuation is roughly in line with the market, suggesting it is not priced with excessive optimism.

This relative valuation is key for the affordable growth screen. It ensures that the company's stellar growth is not already fully discounted by an exorbitant stock price, leaving potential room for appreciation as the company continues to execute.

Profitability and Financial Health

An affordable growth stock must be more than just a fast-growing, cheap company, it needs the underlying strength to sustain its expansion. ONTO Innovation performs well here, having excellent Profitability and Financial Health ratings of 8 and 9, respectively. These factors de-risk the investment by indicating a well-managed company with a sturdy balance sheet.

The profitability is driven by industry-leading margins and returns. The company's Profit Margin of 19.29% and Operating Margin of 22.40% outperform over 80% of its industry peers. Furthermore, its Return on Invested Capital (ROIC) of 10.69% is one of the best in the sector. From a health perspective, the company maintains a strong balance sheet with no outstanding debt and exceptional liquidity, evidenced by a Current Ratio of 9.59, which is better than 94% of its competitors. These characteristics of high profitability and clean financial health are vital filters in the screening process, as they help find companies with the operational excellence and stability to manage market cycles and fund future growth internally.

Conclusion

ONTO Innovation presents a strong case as an affordable growth stock, aligning closely with the criteria of a strategy that seeks quality expansion at a sensible price. The company's solid historical and projected growth provides the upside potential, while its reasonable valuation relative to peers and the market mitigates downside risk. This is further supported by top-tier profitability and an exceptionally strong financial position, which together suggest a company capable of sustaining its path. For investors, this combination of attributes makes ONTO a noteworthy candidate for a growth-oriented portfolio that also values fundamental prudence.

A full detailed breakdown of these fundamental metrics is available in the detailed analysis report for ONTO.

This analysis of ONTO Innovation was derived from a specific screening methodology. Investors looking to discover other companies that fit this profile of good growth, reasonable valuation, and solid fundamentals can find more results by using the Affordable Growth stock screen.

Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer or solicitation to buy or sell any securities. The content presented is based on data believed to be reliable, but its accuracy cannot be guaranteed. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions.