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Autodesk: Great Company, but a Little Pricey
Stock Analysis & Ideas

Autodesk: Great Company, but a Little Pricey

Autodesk (ADSK) is an American multinational software company that manufactures software products and services for the engineering, architecture, manufacturing, education, media, and entertainment industries.

I am neutral on Autodesk because while Wall Street analysts are overwhelmingly bullish on the stock and the company is growing rapidly, the valuation multiples look a bit elevated relative to recent historical averages, thereby making the stock look a bit expensive. (See Analysts’ Top Stocks on TipRanks)

Strengths

Autodesk has offices across the world, with U.S. locations in the states of California, Texas, Massachusetts, Michigan, Oregon, Colorado, and New Hampshire. It also has offices located in the provinces of Canada, including Quebec, Ontario, and Alberta.

Autodesk’s flagship product is AutoCAD, but it also offers a diverse range of software products for various industries and consumers. The company’s Revit software is used for building information modeling that allows users to explore the plan, construction, and management of a building before it is even built.

Its Media and Entertainment division includes animation software tools, 3ds Max, and Maya, which are used in game development and film visual effects.

Recent Results

Autodesk reported total revenue of $1.060 billion in its second-quarter report for 2021. This shows an increase of 16% from the second quarter of 2020. An estimated 98% of the total is represented by recurring revenue.

The company’s design revenue was $ 944 million, which shows an increase of 15% year-over-year and an increase of 7% from the first quarter of 2021. Make revenue was an estimated $90 million, showing an increase of 26% year-over-year and an increase of 10% from the first quarter of 2021.

Subscription plan revenue was $1.017 billion, up 21% from the second quarter of 2020 and 7% quarter-over-quarter. In addition, the company’s maintenance plan revenue was $17 million, showing a decrease of 67% year-over-year and a 12% decrease from the previous quarter.

The company also reported a net revenue retention range of 100 to 110 percent as well as a GAAP operating income of $148 million, compared to $146 million on a year-over-year basis. Cash flow from operating activities was $202 million, showing an increase of $111 million compared to the second quarter of 2020.

For the third quarter of 2021, Autodesk shared a revenue guidance range of $1.11 billion to $1.125 billion. The company expects non-GAAP earnings to be between the range of $1.22 and $1.28 per share. These numbers compare with consensus estimates of $1.11 billion revenue and $1.25 per share.

For Fiscal Year 2022, Autodesk expects to raise its revenue guidance range, from $4.305 billion and $4.385 billion to $4.345 billion and $4.385 billion. Free cash flow is expected to be between $1.5 billion and $1.575 billion.

Valuation Metrics

Autodesk’s stock looks slightly expensive at the moment, as the forward EV/EBITDA ratio is currently 41x, which is elevated relative to its 3-year historical average of 38.8x.

Additionally, its price-to-forward normalized earnings ratio is 53.5x, compared to its 3-year historical average of 52.4x, and its price-to-forward free cash flow ratio is 41.2x compared to its 3-year historical average of 32.6x (see ADSK stock charts on TipRanks).

Wall Street’s Take

From Wall Street analysts, Autodesk earns a Strong Buy consensus rating based on 12 Buys and two Holds assigned in the past three months. Additionally, the average Autodesk price target of $352.92 puts the upside potential at 8.9%.

Summary and Conclusion

Autodesk operates a rapidly growing business that is protected by intellectual property rights, sticky customer relationships, and continuous innovation. Additionally, Wall Street is overwhelmingly bullish on the stock right now.

That said, the share price looks fairly elevated relative to its historical averages, so investors might want to wait for a pullback in the share price.

Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.

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