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Today we're going to take a look at the well-established Cadence Design Systems, Inc. (NASDAQ:CDNS). The company's stock received a lot of attention from a substantial price increase on the NASDAQGS over the last few months. The company is inching closer to its yearly highs following the recent share price climb. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. But what if there is still an opportunity to buy? Let’s examine Cadence Design Systems’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
Check out our latest analysis for Cadence Design Systems
What Is Cadence Design Systems Worth?
Cadence Design Systems appears to be expensive according to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average. We’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 79.67x is currently well-above the industry average of 40.16x, meaning that it is trading at a more expensive price relative to its peers. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Since Cadence Design Systems’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
What kind of growth will Cadence Design Systems generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Cadence Design Systems' earnings over the next few years are expected to increase by 48%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What This Means For You
Are you a shareholder? It seems like the market has well and truly priced in CDNS’s positive outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe CDNS should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.