Cadence Design Systems shares fell by -6.1% during the day's afternoon session, and are now trading at a price of $304.9. Is it time to buy the dip? To better answer that question, it's essential to check if the market is valuing the company's shares fairly in terms of its earnings and equity levels.
Cadence Design Systems's Valuation Is in Line With Its Sector Averages:
Cadence Design Systems, Inc. provides software, hardware, services, and reusable integrated circuit (IC) design blocks worldwide. The company belongs to the Technology sector, which has an average price to earnings (P/E) ratio of 30.01 and an average price to book (P/B) ratio of 3.91. In contrast, Cadence Design Systems has a trailing 12 month P/E ratio of 80.2 and a P/B ratio of 18.32.
Cadence Design Systems has moved 25.1% over the last year compared to 32.7% for the S&P 500 — a difference of -7.7%. Cadence Design Systems has a 52 week high of $328.99 and a 52 week low of $241.29.
Strong Revenue Growth but an Average Current Ratio:
| 2017 | 2018 | 2019 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $1,943 | $2,138 | $2,336 | $2,683 | $2,988 | $4,090 |
| Operating Margins | 17% | 19% | 21% | 24% | 26% | 31% |
| Net Margins | 11% | 16% | 42% | 22% | 23% | 25% |
| Net Income (M) | $204 | $346 | $989 | $591 | $696 | $1,041 |
| Net Interest Expense (M) | $26 | $23 | $19 | $21 | $17 | $36 |
| Depreciation & Amort. (M) | $116 | $119 | $123 | $146 | $142 | $145 |
| Diluted Shares (M) | 280 | 281 | 281 | 278 | 275 | 273 |
| Earnings Per Share | $0.73 | $1.23 | $3.53 | $2.11 | $2.5 | $3.82 |
| EPS Growth | n/a | 68.49% | 186.99% | -40.23% | 18.48% | 52.8% |
| Avg. Price | $40.13 | $42.72 | $64.43 | $148.58 | $152.33 | $304.37 |
| P/E Ratio | 53.51 | 33.9 | 17.8 | 68.79 | 59.97 | 78.85 |
| Free Cash Flow (M) | $413 | $543 | $655 | $810 | $1,036 | $1,247 |
| CAPEX (M) | $58 | $62 | $75 | $95 | $65 | $102 |
| EV / EBITDA | 25.36 | 23.1 | 28.81 | 51.55 | 45.27 | 59.23 |
| Total Debt (M) | $644 | $345 | $346 | $347 | $348 | $649 |
| Net Debt / EBITDA | -0.1 | -0.37 | -0.58 | -0.84 | -0.58 | -0.26 |
| Current Ratio | 1.53 | 1.34 | 1.74 | 1.7 | 1.27 | 1.24 |
Cadence Design Systems benefits from rapidly growing revenues and increasing reinvestment in the business, strong operating margins with a positive growth rate, and exceptional EPS growth. The company's financial statements show generally positive cash flows and healthy leverage levels. Furthermore, Cadence Design Systems has just enough current assets to cover current liabilities, as shown by its current ratio of 1.24.
