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Has Autodesk Turned a Corner with Recent Results?

Shares of design-software maker Autodesk Inc. (NASDAQ:ADSK) have popped following the most recent quarterly results which beat analyst expectations on revenue and earnings.

The company's stock is up more than 6% since Wednesday, which adds to its impressive performance over the last five weeks. Shares of Autodesk are up nearly 30% since October 21.


Autodesk appears to be turning a corner based on recent results. The company last turned an annual profit in the fiscal year 2015 but based on the results posted in the last three quarters the fiscal year 2020 could mark a return to a positive bottom line.

After posting a net loss of about $24 million in the fiscal first quarter, the company turned a net profit of $40.2 million in the second, and now the third quarter bottom line of $66.7 million tallies the three-month net income to well over $80 million going into the final quarter.

Highlights from Q3 results

Autodesk posted revenues of $842.7 million in the most recent quarter, which convincingly beat the company's guidance of $820-$830 million and topped analyst expectations of $824 million. The company's top line grew 28% from the same period last year at constant currency, with acquisitions contributing just 4% of that growth.

Autodesk's third quarter earnings per share of $0.78 was also better than is own guidance of $0.70-$0.74 per share and beat the consensus analyst estimate of $0.73. The company has consistently outperformed analyst expectations on earnings over the last three years with the only exception coming in fiscal first quarter of this year.

The software maker continued to witness tremendous growth in subscription revenues, which were up 48.6% in the third quarter and accounted for 84.8% of total revenues. Maintenance revenues accounted for about 10% of total revenues and plunged by more than 39% while other revenues soared 23.7%.

Growth drivers

With the main top-line contributor showing no signs of slowing down, the design-software maker appears well-positioned for an extended period of good performance which will be backed by strong industry growth.

Autodesk operates in four main verticals. Architecture, engineering, and construction will derive growth from the augmented reality (AR) market, which construction companies are using to speed up their design processes.

The manufacturing unit is already witnessing growth from the rapid adoption of additive manufacturing techniques while the media and entertainment segment will leverage advances in technology to revolutionize video production and film making. Computer-generated imaging (CGI) technology continues to improve the quality of animated films and this will only boost the growth of the automated computer-aided design (AutoCAD) market, which is also part of Autodesk's main business verticals.

Valuation

From a valuation perspective, the shares of Autodesk appear to be expensively valued at a trailing 12-month price-earnings ratio of 271. Its close rivals have a better price-earnings valuation metrics with Adobe Inc. (NASDAQ:ADBE) currently trading at a trailing price-earnings of about 55 while ANSYS Inc.'s (NASDAQ:ANSS) equivalent stands at about 49. The UK-based AVEVA Group Inc. (LON:AVV), on the other hand, trades at a trailing 12-month price-earnings ratio of 128.

However, when you factor in growth prospects for the four companies, Autodesk offers the most attractive option valued at price-earnings-growth ratio (5-year expected) of just 0.86 while Adobe and ANSYS trade at price-earnings-growth ratios of 2.05 and 5.69, respectively. AVEVA 5-year earnings forecast is inconclusive and therefore non-applicable.

Conslusion

In summary, judging Autodesk's current valuation based on the trailing price-earnings ratio can be misleading. The company appears to be turning a corner based on recent results and this provides shareholders with a more interesting future to look forward to.

Dislcosure: No position in stocks mentioned.

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This article first appeared on GuruFocus.