Does Synopsys Inc’s (NASDAQ:SNPS) Past Performance Indicate A Weaker Future?
Understanding Synopsys Inc’s (NASDAQ:SNPS) performance as a company requires examining more than earnings from one point in time. Today I will take you through a basic sense check to gain perspective on how Synopsys is doing by evaluating its latest earnings with its longer term trend as well as its industry peers’ performance over the same period. Check out our latest analysis for Synopsys
How Did SNPS’s Recent Performance Stack Up Against Its Past?
I like to use the ‘latest twelve-month’ data, which either annualizes the most recent 6-month earnings update, or in some cases, the most recent annual report is already the latest available financial data. This enables me to analyze many different companies on a similar basis, using the most relevant data points. For Synopsys, its latest earnings (trailing twelve month) is US$46.28M, which, against the previous year’s level, has dropped by a non-trivial -84.22%. Given that these values are fairly nearsighted, I’ve computed an annualized five-year figure for Synopsys’s net income, which stands at US$226.95M This doesn’t look much better, as earnings seem to have consistently been falling over time.
Why could this be happening? Well, let’s look at what’s occurring with margins and whether the entire industry is facing the same headwind. Revenue growth over the last few years, has been positive, however, earnings growth has fallen behind meaning Synopsys has been growing its expenses by a lot more. This harms margins and earnings, and is not a sustainable practice. Eyeballing growth from a sector-level, the US software industry has been growing its average earnings by double-digit 11.53% in the prior year, and 12.89% over the previous five years. This means any uplift the industry is profiting from, Synopsys has not been able to gain as much as its industry peers.
What does this mean?
Synopsys’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Usually companies that experience an extended period of decline in earnings are undergoing some sort of reinvestment phase in order to keep up with the recent industry disruption and growth. You should continue to research Synopsys to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for SNPS’s future growth? Take a look at our free research report of analyst consensus for SNPS’s outlook.
Financial Health: Is SNPS’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 31 January 2018. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
