Even during a down period for the markets, Novanta has gone against the grain, climbing to $118.13. Its shares have yielded a 17.2% return over the last six months, beating the S&P 500 by 22.6%. This performance may have investors wondering how to approach the situation.

Is there a buying opportunity in Novanta, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Despite the momentum, we don't have much confidence in Novanta. Here are three reasons you should be careful with NOVT and a stock we'd rather own.

Long-term growth is the most important, but within industrials, a stretched historical view may miss new industry trends or demand cycles. Novanta’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 5.5% over the last two years was well below its five-year trend.

Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.

Novanta’s unimpressive 4.2% annual EPS growth over the last two years aligns with its revenue trend. This tells us it maintained its per-share profitability as it expanded.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

As you can see below, Novanta’s margin dropped by 5.6 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Novanta’s free cash flow margin for the trailing 12 months was 4.9%.

Novanta isn’t a terrible business, but it doesn’t pass our bar. With its shares outperforming the market lately, the stock trades at 31.8× forward P/E (or $118.13 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere. Let us point you toward the most dominant software business in the world.

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