Skip to main content

Can Synopsys rise from the dead?

Last night I published the Thursday Swing Trading Signals and there was an interesting mid-cap tech company on the list. The company is Synopsys (SNPS).

Why do I question whether it can rise from the dead? Take a look at this chart:

You can see that the stock got slammed in early December and was left for dead. The sell-off was induced by an earnings report where the company announced lower quarterly profit and sales as well as higher expenses.

Today, the stock opened with an upside gap and so far is holding its gains.

Company Background --

Synopsys, Inc. and its subsidiaries provide electronic design automation (EDA) software and related services for semiconductor design companies in the United States, Europe, Japan, and the Asia Pacific. The software provides design and verification, optimization, simulation and timing analysis capabilities. The company supports both digital and analog chip design and provides professional services.

Synopsys, a $3 billion company, is a clear market leader in the EDA field. The following chart compares by revenue Synpsys to its competitors:

Explore more SNPS Data on Wikinvest

Financial Background --

The company is not cheap but neither is it especially expensive. Value indicators are at moderate levels with a PEG of 1.4, price-to-sales at 2.26 and an Enterprise Value/EBITDA ratio a little over 6.

The company is cash flow positive and has no debt. The following chart shows revenue, net income and net margin over the last five quarters.

Explore more SNPS Data on Wikinvest

As you can see, revenues sagged during the worst of the downturn but are making a comeback. The best you can say about net income, however, is that it has been stuck in neutral for the last few quarters. Margins have declined recently, as well. Even as the semiconductor industry has been picking up in the last quarter or two, Synopsys and the EDA sector in general have continued to struggle.

The outlook --

Truth be told, Synopsys didn't do a bad job during the economic downturn, remaining profitable and comfortably in a leadership position in their industry.

At the time of their last earnings report, Synopsys predicted for fiscal 2010 a profit of $1.01 to $1.20 per share, or $1.52 to $1.62 per share when excluding items, and revenue of $1.33 billion to $1.35 billion, essentially flat with the previous year. Analysts polled by Thomson Reuters had projected adjusted earnings of $1.68 per share on $1.37 billion in revenue.

The fact that the company's earnings are lagging those of the chip manufacturers is not surprising. Before EDA vendors or semiconductor equipment manufacturers can see significant growth return, the chip manufacturers need to begin to exhibit stronger demand. Providing we don't see a double-dip next year, that demand should return and companies like Synopsys should be able to return to growth.

As for today's move? I would be stunned to think that my simple site caused the buying so I am assuming that somewhere there is an analyst who upgraded the stock. Or perhaps management pre-announced better than expected earnings as we near the end of this quarter. In either case, the news has not been picked up by Google yet. Nevertheless, one could make an argument that decent growth in 2010 would mean the stock is cheap today. And technically, it appears the downdraft in the stock price has been arrested at the 200-day moving average so maybe it's just ripe for a swing trade.

Disclosure: no positions


Popular posts from this blog

Brazil - in a bubble or on a roll?

A couple of years ago, no one recognized the real estate bubble even though it was under everyone's nose. Now, analysts and bloggers are seeing bubbles everywhere they look. One of them, they say is in Brazil whose Bovespa stock market index has doubled in the last 12 months. Does the bubble accusation hold water? I don't think so and here are 7 reasons why Brazil is by no means a bubble economy: Exports have held up over the past year thanks to demand from China for Brazil's soya exports and iron ore. This was helped by the the Brazilian government's drive to improve trade links with Asia and Africa. Export diversification, spurred by a more active trade policy and increased focus on "south-south" trade under current president Lula, helped mitigate the decline in demand from OECD (Organization for Economic Co-operation and Development) countries A "sensible" economic framework has been in place since the 1990's. This has included inflation

Unlock Stock Market Profits - Key #1

This is the first in an ongoing series of articles where I discuss what I feel are keys to successful investing. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. ( Click here to read the original post ) There are two basic steps to investing. First, you need to find stocks that seem to have some potential. Then you have to determine whether these stocks are actually good investments. There are many stocks that at first glance look interesting, but further research reveals that there are too many negatives to warrant taking a position. This first post in the series starts at the beginning: getting good investment ideas. Key #1: If something special is happening to a stock, it will be reflected in some kind of unusual activity in the markets. As individual investors, we will never be the first to know; however, unusual activity can be an early sign that allows us to follow the Wall Street professional

Unlock Stock Market Profits - Key #4

This is the fourth article in a series of posts describing 10 tools to help you identify and evaluate good investing ideas. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. ( Click here to read the original post ) With this fourth post, we will continue another step along the path of finding stocks that seem to have some potential. The first post in the series discussed how to use unusual activity to identify investing ideas. The second post described how to use stock screeners. The third post described how to use lists of new highs and new lows. This post will focus on identifying social or business trends in order to find investing ideas. Information on new trends might turn up anywhere. In conversation with friends or business associates, in newspapers or magazines, on TV or though your work. The key is to be aware of trends and how they start, stop or change. We'll start by describing what