Synopsys Inc (SNPS, 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 $461.49, Synopsys Inc has witnessed a daily gain of 2.39%, marked against a three-month change of 6.01%. A thorough analysis, underlined by the GF Score, suggests that Synopsys Inc is well-positioned for substantial growth in the near future.
Decoding 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.
For Synopsys Inc, the GF Score components are as follows:
- Financial strength rank: 9/10
- Profitability rank: 9/10
- 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 Synopsys Inc the GF Score of 92 out of 100, which signals the highest outperformance potential.
Understanding Synopsys Inc's Business
Synopsys Inc, with a market cap of $70.19 billion and sales of $5.53 billion, is a leading provider of electronic design automation software, intellectual property, and software integrity 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. Synopsys' growing SI business allows customers to continuously manage and test the code base for security and quality. 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 chip design. The resulting expansion in EDA customers alongside secular digitalization of various end markets benefits EDA vendors like Synopsys.
Financial Strength Breakdown
According to the Financial Strength rating, Synopsys Inc's robust balance sheet exhibits resilience against financial volatility, reflecting prudent management of capital structure. The Interest Coverage ratio for Synopsys Inc stands impressively at 888.41, 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 12.68, Synopsys Inc exhibits a strong defense against financial distress, highlighting its robust financial stability. With a favorable Debt-to-Revenue ratio of 0.13, Synopsys Inc's strategic handling of debt solidifies its financial health.
Profitability Rank Breakdown
The Profitability Rank shows Synopsys Inc's impressive standing among its peers in generating profit. Synopsys Inc Operating Margin has increased (68.56%) over the past five years, as shown by the following data: 2019: 16.88; 2020: 17.81; 2021: 18.27; 2022: 23.11; 2023: 20.15. The Piotroski F-Score confirms Synopsys Inc's solid financial situation based on Joseph Piotroski's nine-point scale, which measures a company's profitability, funding and operating efficiency. Synopsys Inc's strong Predictability Rank of 4.0 stars out of five underscores its consistent operational performance, providing investors with increased confidence.
Growth Rank Breakdown
Ranked highly in Growth, Synopsys Inc demonstrates a strong commitment to expanding its business. The company's 3-Year Revenue Growth Rate is 14.2%, which outperforms better than 64.01% of 2398 companies in the Software industry. Moreover, Synopsys 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 20.4, and the rate over the past five years is 18.1. This trend accentuates the company's continued capability to drive growth.
Conclusion
Given Synopsys Inc's strong financial strength, profitability, and growth metrics, the GF Score highlights the firm's unparalleled position for potential outperformance. This analysis underscores the company's robust financial health and growth prospects, making it a compelling investment opportunity for value investors. GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen
