On March 19, 2024, Synopsys Inc (SNPS, Financial) experienced a daily gain of 1.95%, contributing to a 3-month gain of 2.24%, with an Earnings Per Share (EPS) of $9.08. Investors are keen to understand whether this performance is a sign of enduring strength or if Synopsys is modestly overvalued. The following analysis dives into the company's valuation to provide a clearer picture.
Company Introduction
Synopsys Inc (SNPS, Financial) is a leading provider of electronic design automation software, intellectual property, and software integrity products. With a market cap of $87.20 billion and sales reaching $6.10 billion, Synopsys stands out as a key player in the digital transformation of various end markets. Despite its current stock price of $571.58, the GF Value suggests a fair value estimation of $458.42, indicating that the stock might be modestly overvalued. This valuation discrepancy sets the stage for an in-depth analysis of the company's intrinsic worth.
Summarize GF Value
The GF Value is a proprietary metric that calculates the intrinsic value of a stock based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. When the stock price significantly deviates from the GF Value Line, it may indicate overvaluation or undervaluation, affecting potential future returns. Currently, Synopsys (SNPS, Financial) appears modestly overvalued, suggesting that the long-term return on its stock might be lower than the company's business growth.
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Financial Strength
Investors must evaluate a company's financial strength before investing. Synopsys has a cash-to-debt ratio of 1.9, placing it in a better position than 53.73% of companies in the Software industry. With a strong financial strength rating of 9 out of 10, Synopsys showcases robust financial health, which is critical for long-term investment consideration.
Profitability and Growth
Consistent profitability is a hallmark of a less risky investment. Synopsys has maintained profitability for the past decade, with an impressive operating margin of 22.99%, outperforming 91.71% of its peers in the Software industry. The company's strong profitability is complemented by its growth trends, with a 3-year average revenue growth rate that surpasses 68.25% of companies in the Software industry. Additionally, Synopsys's 3-year average EBITDA growth rate of 22.2% indicates a competitive edge in growth among its industry counterparts.
ROIC vs. WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) provides insight into its profitability and value creation. Synopsys's ROIC of 15.16 exceeds its WACC of 11.13, suggesting that the company efficiently generates cash flow relative to its invested capital, thereby creating shareholder value.
Conclusion
In summary, while Synopsys (SNPS, Financial) is currently seen as modestly overvalued, the company's financial condition and profitability are robust. Its growth outpaces a significant portion of the Software industry. For a deeper understanding of Synopsys's financial health and potential, investors can explore its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
