Cadence Design Systems Inc (CDNS, Financial) has recently been in the spotlight, drawing interest from investors and financial analysts due to its robust financial stance. With shares currently priced at $234.15, Cadence Design Systems Inc has witnessed a daily gain of 2.39%, marked against a three-month change of -0.95%. A thorough analysis, underlined by the GF Score, suggests that Cadence Design Systems Inc is well-positioned for substantial growth in the near future.
Understanding the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
- Financial strength rank: 8/10
- Profitability rank: 10/10
- Growth rank: 10/10
- GF Value rank: 3/10
- Momentum rank: 9/10
Each one of these components is ranked and the ranks also have positive correlation with the long term performances of stocks. The GF score is calculated using the five key aspects of analysis. Through backtesting, we know that each of these key aspects has a different impact on the stock price performance. Thus, they are weighted differently when calculating the total score. With high ranks in financial strength, profitability, and growth, and decent ranks in GF value and momentum, GuruFocus assigned Cadence Design Systems Inc the GF Score of 94 out of 100, which signals the highest outperformance potential.
Overview of Cadence Design Systems Inc
Cadence Design Systems Inc, with a market cap of $63.64 billion and sales of $3.8 billion, is a leading provider of electronic design automation software, intellectual property, and system design and analysis products. The company's EDA software automates the chip design process, enhancing design accuracy, productivity, and complexity in a full-flow end-to-end solution. Cadence offers a portfolio of design IP, as well as system design and analysis products, which enable system-level analysis and verification solutions. The company's comprehensive portfolio is benefiting from a mutual convergence of semiconductor companies moving up-stack toward systems-like companies, and systems companies moving down-stack toward in-house semiconductor design. The resulting expansion in EDA customers, alongside secular digitalization of various end markets, benefits EDA vendors like Cadence.
Financial Strength Analysis
According to the Financial Strength rating, Cadence Design Systems Inc's robust balance sheet exhibits resilience against financial volatility, reflecting prudent management of capital structure. The Interest Coverage ratio for Cadence Design Systems Inc stands impressively at 33.47, underscoring its strong capability to cover its interest obligations. This robust financial position resonates with the wisdom of legendary investor Benjamin Graham, who favored companies with an interest coverage ratio of at least 5. With an Altman Z-Score of 19.81, Cadence Design Systems Inc exhibits a strong defense against financial distress, highlighting its robust financial stability. With a favorable Debt-to-Revenue ratio of 0.17, Cadence Design Systems Inc's strategic handling of debt solidifies its financial health.
Profitability Rank Analysis
The Profitability Rank shows Cadence Design Systems Inc's impressive standing among its peers in generating profit. Cadence Design Systems Inc Operating Margin has increased (58.25%) over the past five years, as shown by the following data: 2018: 19.05; 2019: 21.42; 2020: 24.41; 2021: 26.04; 2022: 30.15. Furthermore, Cadence Design Systems Inc's Gross Margin has seen a consistent rise over the past five years, as evidenced by the data: 2018: 87.90; 2019: 88.60; 2020: 88.61; 2021: 89.73; 2022: 89.57. This trend underscores the company's growing proficiency in transforming revenue into profit. Cadence Design Systems Inc's strong Predictability Rank of 3.5 stars out of five underscores its consistent operational performance, providing investors with increased confidence.
Growth Rank Analysis
Ranked highly in Growth, Cadence Design Systems Inc demonstrates a strong commitment to expanding its business. The company's 3-Year Revenue Growth Rate is 15.9%, which outperforms better than 67.39% of 2398 companies in the Software industry. Moreover, Cadence Design Systems Inc has seen a robust increase in its earnings before interest, taxes, depreciation, and amortization (EBITDA) over the past few years. Specifically, the three-year growth rate stands at 25.5, and the rate over the past five years is 21.9. This trend accentuates the company's continued capability to drive growth.
Conclusion
With its strong financial strength, profitability, and growth metrics, Cadence Design Systems Inc stands out as a promising investment opportunity. The GF Score highlights the firm's unparalleled position for potential outperformance. Investors seeking to capitalize on this potential can find more companies with strong GF Scores using the following screener link: GF Score Screen.
