With over 85% market share in the synthesis market, a growing portfolio of new products/acquistions, a strong balance sheet, and a solidly #2 position in the EDA industry, I cannot fathom why SNPS is languishing at 30+. Here's a company that has leadership position in synthesis, simulation, and test but is trading at just 13 times next years's projected earnings. What gives?
Based on First Call's 1.91 it is trading at a modest 17 times earnings. For next year, the estimates stand at $2.49, making for a ridiculously low projected PE of l3. The analysts peg future growth rate at somewhere between 25 and 30%.
Even a modest multiple of 20 times earnings should produce a valuation that's closer to $40 (YE Sep 98) and $50 (YE Sep 99). Unless there are some nasty surprises in store, this stock has very limited downside. If it starts to trade in line with its growth projection of 25%, I expect the stock price to touch $55 by mid-1998.
I agree with your numbers and would make the following prediction. This stock will jump between 30 and 50% in the month of April from it's current levels. It will likely languish in it's current range and possibly even lower over the next 3 weeks though thus presenting a perfect buying opportunity. If you are long right now, my advice is stay long. If you are lurking, get into this stock soon before you miss out on a hell of a ride (this stock does not move in slow, easy going cycles but rather spastic seizures and there will be no time to get in once it "decides" to move). If you are short, you are nuts- as stated, there is minimal downside to this stock in the medium to long run.
Good luck to all- don't forget your due diligence.
Patient investors are sure to be rewarded with this super stock. Extreme divergence in the SAME industry is not likely to last for long. Case in point: Cadence is trading near its all-time high 25 times next year's earnings) while SNPS is hovering around its 52-week lows (15 times projected earnings). CDN tools have a lock on the physical design phase while SNPS tools have virtually no meaningful competition for the logical design phase. Last I checked, designing a chip needed both phases. How is it then that the physical design leader is flourishing and the logical design leader is languishing?
Most of SNPS business is booked in the last two weeks of the quarter (read their latest 10-Q). Could this be qtr-end skittishness or does anyone smell trouble this quarter? I've seen no pre-announcements, downgrades, estimate revisions.
Unless my due dilligence has serious holes in it, this one looks like a wineer to me!
I basically agree with your overall assement. But.....
What troubles me though is that the potential growth in the logic Synthesis market is not what it use to be. It is close to capacity. SNPS can can only obtain revenue for capacity upgrades in this area, because of this, it will slow their growth rates. As to new products, their track record here is not too hot. The VIEWlogic aquisition is a wildcard. If they can retain the VCS team this will help. If not, I believe the grow rates will not support the numbers your quoting