Synopsys: Time Traveler

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Wouldn't it be great if stocks never went down?

If, for example, Synopsys (Nasdaq: SNPS) had managed to just maintain a stable stock price over the past month, investors could be smiling over the 9% gain they reaped after the maker of semiconductor design software reported earnings on Thursday. Unfortunately, before the stock went up, it went down, with the net result that shareholders today sit right about where they were this time last month.

But enough about the stock. How's the actual business going at Synopsys?

Pretty darn good
Reporting $315.2 million in sales and $0.27 per share by GAAP figuring, compared with $0.07 last year -- a near fourfold increase over last year's Q4 -- Synopsys once again thrashed analyst estimates for both sales and earnings last week. The company's not yet earning the kind of margins that rival Cadence (Nasdaq: CDNS) pulls down, but at 9.7% for the year, its operating margin looks a good sight better than those of money-losing Magma Design (Nasdaq: LAVA) and Virage Logic (Nasdaq: VIRL).

The cash-flow story read even better. Remember how Synopsys was promising to generate $275 million in operating cash flow earlier this year? Remember how it bumped that figure up to $325 million in last quarter's report? Then you're going to love what Synopsys ultimately reported last week.

How about $433.5 million?

That's right, with a "4"
Fools keep a special place in their hearts for companies that underpromise and overdeliver like this. So while I'm of course disappointed that management promised decreased cash flow next year, I'm going to season its promise to once again generate "Cash flow from operations: greater than $325 million" with a few grains of salt. Mmm, tasty.

Meanwhile, current investors in the company can savor the valuation. With accounts receivable essentially flat year over year, it seems that Synopsys' customers -- including the likes of AMD (NYSE: AMD), Intel (Nasdaq: INTC), and Infineon (NYSE: IFX) -- are finally paying up. After you net out last year's capital expenditures, Synopsys' $388.8 million in free cash flow now gives the stock an entirely reasonable price-to-free cash flow ratio of 10, and an even lower enterprise value-to-free cash flow ratio. With analysts predicting that profits will keep on growing at close to 10% per year for the next half-decade, I think that makes the stock look entirely buyable at today's price.

Find our synopses on Synopsys' last quarter at:

• Synopsys: Analysts Duped
• Foolish Forecast: Synopsys Oversimplified