Thinking about Autodesk? We Studied It, so You Don't Have to.

One of the biggest losers as of today's morning session is software company Autodesk, a whose shares are down -8.3%, underperforming the Nasdaq by -8.7%.
At $191.54, ADSK is 23.91% below its average analyst target price of $251.72. The average analyst rating for the stock is buy. ADSK lagged -8.5% behind the S&P 500 index today, and by -3.8% over the last year, returning -18.7%.

Autodesk's trailing 12 month P/E ratio is 76.9, based on its trailing Eps of $2.49. The company has a forward P/E ratio of 24.7 according to its forward Eps of $7.75 -- which is an estimate of what its earnings will look like in the next quarter. The average trailing Price to Earnings (P/E) ratio of US-based technology companies is 26.5 as of third quarter of 2022. In contrast, the S&P 500 average is 15.97. The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead).

We can take the price to earnings analysis one step further by dividing the P/E ratio by the company’s projected five-year growth rate, which gives us its Price to Earnings Growth, or PEG ratio. This ratio is important because it allows us to identify companies that have a low price to earnings ratio because of low growth expectations, or conversely, companies with high P/E ratios because growth is expected to take off.

Autodesk's PEG ratio of 1.35 indicates that its P/E ratio is fair compared to its projected earnings growth. In other words, the company’s valuation accurately reflects its estimated growth potential. The caveat, however, is that these growth estimates could turn out to be inaccurate.

To better understand the strength of Autodesk's business, we can analyse its operating margins, which are its revenues minues its operating costs. Consistently strong margins backed by a positive trend can signal that a company is on track to deliver returns for its shareholders. Here's the operating margin statistics for the last four years:

Date Reported Total Revenue ($) Operating Expenses ($) Operating Margins (%) YoY Growth (%)
2022-01-31 4,386,400,000.0 3,643,800,000.0 16.93 -0.06
2021-01-31 3,790,400,000.0 3,148,200,000.0 16.94 48.6
2020-01-31 3,274,300,000.0 2,901,000,000.0 11.4 783.72
2019-01-31 2,569,800,000.0 2,536,700,000.0 1.29 n/a
  • Average operating margins: 11.6%
  • Average operating margins growth rate: 277.4%
  • Coefficient of variability (lower numbers indicate less volatility): 63.4%

Autodesk's financial viability can also be assessed through a review of its free cash flow trends. Free cash flow refers to its operating cash flows minues its capital expenditures, which are expenses related to the maintenance of fixed assets such as land, infrastructure, and equipment. Over the last four years, the trends have been as follows:

Date Reported Cash Flow from Operations ($) Capital expenditures ($) Free Cash Flow ($) YoY Growth (%)
2022-01-31 1,531,300,000.0 -56,000,000.0 1,475,300,000.0 9.6
2021-01-31 1,437,200,000.0 -91,100,000.0 1,346,100,000.0 -1.16
2020-01-31 1,415,100,000.0 -53,200,000.0 1,361,900,000.0 339.18
2019-01-31 377,100,000.0 -67,000,000.0 310,100,000.0 n/a
  • Average free cash flow: $1,123,350,000.00
  • Average free cash flow growth rate: 115.9%
  • Coefficient of variability (lower numbers indicating more stability): 48.5%

Free cash flows represents the amount of money that is available for reinvesting in the business, or paying out to investors in the form of a dividend. With a positive cash flow as of the last fiscal year, ADSK is in a position to do either -- which can encourage more investors to place their capital in the company.

Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (its share price divided by its book value). As of the third quarter of 2022, the mean P/B ratio of the technology sector is 5.57, compared to the S&P 500 average of 2.95. The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method. Autodesk's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 55, so it's likely that equity investors are over-valuing the company's assets.

Since it has an inflated P/E ratio, an elevated P/B ratio, but a steady stream of strong cash flows with an upwards trend, Autodesk is likely fairly valued at today's prices. The company has mixed growth indicators because of an average PEG ratio and stable margins. We hope you enjoyed this basic overview of ADSK's fundamentals. Make sure to check the numbers for yourself, especially focusing on their trends over the last few years.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.