Is Autodesk Inventory a Buy?

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Autodesk (NASDAQ: ADSK) Shares fell not too long ago after the design software program firm launched its fourth quarter fiscal 2021 outcomes. Income was up 16% year-over-year to $ 1.04 billion, exceeding expectations of $ 30 million.

Its non-GAAP internet revenue rose 29% to $ 262 million, or $ 1.18 per share, additionally exceeding analyst consensus. On a GAAP foundation, internet revenue climbed almost seven occasions to $ 911 million, however that progress was primarily on account of a tax enhance of $ 679 million.

A designer creates a 3D model on a computer.

Picture supply: Getty Pictures.

Autodesk’s key figures seemed robust, however the inventory had already risen by round 50% within the earlier 12 months and was buying and selling above comparable software program corporations reminiscent of Adobe.

In consequence, the inventory decreased with the NASDAQ, which failed as greater Treasury yields sparked a selloff in higher-growth tech shares. This strain might proceed for the foreseeable future, however ought to buyers take into account shopping for Autodesk inventory after its current pullback?

The important thing numbers

Autodesk divides its software program portfolio into 4 teams: AEC (Structure, Engineering and Building), AutoCAD and AutoCAD LT, MFG (Manufacturing), and M&E (Media and Leisure).

The AEC enterprise generated 43% of its fourth quarter income. 28% got here from the AutoCAD group, 23% from its MFG unit and 6% from its M&E unit. This is how these segments carried out all through fiscal 2021:

Income progress (year-on-year) Q1 2021 Q2 2021 Q3 2021 This autumn 2021 FY 2021
AEC 26% 19% 17% 18% 20%
AutoCAD 23% 18% 14% 11% 16%
MFG 9% 6% 7% 17% ten%
I 16% 5% 7% 14% ten%
Complete 20% 15% 13% 16% 16%

Information supply: Autodesk. YOY = yr after yr.

Autodesk’s enterprise remained resilient all through the pandemic, largely as a result of it had already turned most of its desktop software program into subscription cloud companies. This technique, which Adobe has additionally adopted in recent times, blocks subscribers within the occasion of an financial downturn.

Its MFG and M&E enterprise grew at a slower tempo within the second and third quarters because the pandemic disrupted the manufacturing and media sectors, however most of these headwinds had died down by the tip of the yr. yr.

A excessive retention charge and steady margins

Autodesk’s internet income retention charge additionally remained above 100% all through fiscal 2021, which means its current clients continued to spend extra money with the corporate regardless of the pandemic.

This wholesome retention charge signifies that Autodesk nonetheless has vital pricing energy, as lots of its software program is taken into account must-have of their respective industries.

That is why Autodesk’s non-GAAP gross margin fell from 91.7% in fiscal 2020 to 92.6% in fiscal 2021. Its spending disciplined all year long have additionally enabled it to keep up steady working margins:

Working margin Q1 2021 Q2 2021 Q3 2021 This autumn 2021 FY 2021
GAAP 15% 16% 18% 18% 17%
Non-GAAP 28% 29% 30% 30% 29%

Information supply: Autodesk.

Steering missed the mark

Autodesk’s fourth quarter numbers seemed robust, however its forecast was messy. For the primary quarter of fiscal 2022, administration expects income to develop 8% to 9% yr over yr, whereas adjusted EPS will rise 7% to 13%. The 2 ranges didn’t meet analysts’ expectations.

The corporate attributed the weak forecast to regular seasonal headwinds, a shorter quarter in comparison with the earlier yr, and a change in how Autodesk accounts for income from its Vault knowledge administration service.

For the total yr, Autodesk expects its income to extend by 13% to fifteen%, which is in step with analysts’ expectations. Nonetheless, the potential earnings progress of 18% to 25% was inadequate. To complicate issues additional, this steering ignores the corporate’s plan to bolster its AEC enterprise by buying Innovyze, a developer of water infrastructure software program, for $ 1 billion in money.

However in the course of the convention name, CEO Andrew Anagnost predicted that the acquisition of Innovyze can be “accretive for income progress, broadly impartial totally free money move, and a headwind on reported working margins. throughout fiscal years 2022 and 2023 ”. These blended outcomes point out that the corporate will possible replace its expectations for fiscal 2022 after the deal closes within the present quarter.

A strong firm with a foamy valuation

There may be nonetheless rather a lot to love about Autodesk. It generates regular income progress, margins are wholesome, and its cloud-based companies are steady. However at almost $ 280 a share, Autodesk is buying and selling at 56 occasions FY2021 earnings.

This a number of, which is far greater than Adobe’s anticipated P / E ratio of 41, means that too many buyers have already flocked to Autodesk as an opportunistic recreation in the course of the pandemic. Subsequently, I’d droop my buy in Autodesk till its inventory cools down a bit on this very foamy market.

This text represents the opinion of the creator, who could disagree with the “official” suggestion place of a premium Motley Idiot consulting service. We’re colourful! Difficult an funding thesis – even certainly one of our personal – helps all of us to assume critically about investing and make selections that assist us turn into smarter, happier, and richer.

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