Is Autodesk Stock a Purchase?


The Biden administration has made an infrastructure spending bill a top priority. The final amount has yet to be determined, but hundreds of billions of dollars are expected to be spent on America’s roads, power grid, manufacturing capabilities, and technological research to prepare it for a new digital age. With so much money expected to be invested over the next decade, many companies are poised to benefit.

Autodesk (NASDAQ: ADSK) could be one of those beneficiaries. The computer-aided design (CAD) software company has a presence in many sectors of the economy, from architecture and engineering to construction and manufacturing. The stock is trading for a high premium, but long-term steady growth and an upbeat outlook are worth a closer look.

Image source: Getty Images.

Recovery of initial bottlenecks in the event of a pandemic

Autodesk, best known for its AutoCAD software for architects, engineers, and construction management, ended up having a pretty good 2020. Despite temporary blockages on projects last spring, Autodesk’s software suite is a tool. essential for many design professionals. It’s also on a recurring payment schedule, either through its cloud-based offering or through legacy software downloaded directly to a computer. Lockouts or not, most customers continued to pay and renew their software licenses.

As a result, revenue for fiscal 2021 (the 12 months ended Jan.31, 2021) increased 16% to $ 3.79 billion, and free cash flow was essentially flat year over year. another to $ 1.35 billion. So even in a difficult period marked by the pandemic and heightened uncertainty, Autodesk enjoyed a free cash flow margin of nearly 36%.

The new year is also off to a good start. Revenue for the first quarter of fiscal 2022 (three months ended April 30, 2021) increased 12%, and full-year forecast calls for sales growth of 14% to 16% and growth free cash flow of 17% to 22%. Software specifically used for architecture, engineering and construction is leading the way, especially as some projects temporarily suspended last year are restarting.

A unique bet for many opportunities

Autodesk frequently uses its strong generation of free cash flow to acquire other software design companies to expand its ecosystem. Most recently, she purchased the manufacturing product lifecycle management company Upchain for an undisclosed amount. In early 2021, it was announced that hydraulic infrastructure design company Innovyze was acquired for $ 1 billion, and AI-based city planning software company Spacemaker was acquired in late 2020 for $ 240 million. dollars. These three smaller software platforms deal directly with parts of the infrastructure bill. More than a bet on construction, Autodesk could have multiple tailwinds propelling it higher over the next decade.

Historically, mergers and acquisitions have been a sketchy proposition. But software is another story. Software is a highly scalable business model – especially cloud-based businesses – and relying on peers that complement an existing suite of services typically pays off very quickly for companies like Autodesk. The recent pace of buying has limited free cash flow lately, but eventually the company will return to solid earnings growth as it begins to exceed the prices it recently paid.

ADSK Revenue Graph (TTM)

Data by YCharts.

There are competitors who could present a risk in the long term. Parts of Adobethe software empire overlaps that of Autodesk, just like the physics simulator Ansys, CAD manufacturing company CTP, and Bentley Systems. Video game design platform Unity software is also growing and finding use among designers. But computer-aided design is a growing industry, especially with the promise of infrastructure upgrades on the horizon. There is still plenty of room for multiple winners here, and Autodesk’s wide range of services gives it an advantage in attracting new customers and then deepening its relationship with them.

The promise of steady sales growth and even faster earnings growth means Autodesk stocks are trading for a premium. Stocks are currently valued at 47 times free cash flow over the past 12 months and 39 times expected free cash flow for the current year. Don’t expect a quick and massive market outperformance here. Nonetheless, if you are looking for long-term stable growth, this is a major player in the CAD industry, which could be boosted in the years to come if the federal government starts spending big on investments. construction projects. Autodesk is a great stock if you plan to buy and hold on for at least a few years.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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