Autodesk (NASDAQ:ADSK) stock recently dropped after the design software company posted its fiscal 2021 fourth quarter earnings. Revenue rose 16% year over year to $1.04 billion, beating expectations by $30 million.

Its non-GAAP net income increased 29% to $262 million, or $1.18 per share, also topping the analyst consensus. On a GAAP basis, net income jumped nearly sevenfold to $911 million, but that growth mainly came from a tax-related boost of $679 million.

A designer creates a 3D model on a computer.

Image source: Getty Images.

Autodesk's headline numbers looked strong, but the stock had already risen about 50% over the prior 12 months and was trading at a premium to comparable software companies like Adobe.

As a result, the stock declined with the NASDAQ, which floundered as higher Treasury yields sparked a sell-off in higher-growth tech stocks. That pressure could continue for the foreseeable future, but should investors consider buying Autodesk stock after its recent pullback?

The key numbers

Autodesk splits its software portfolio into four groups: AEC (Architecture, Engineering, and Construction), AutoCAD and AutoCAD LT, MFG (Manufacturing), and M&E (Media and Entertainment).

The AEC segment generated 43% of its fourth-quarter revenue. Another 28% came from the AutoCAD group, 23% from its MFG unit, and 6% from its M&E unit. Here's how those segments fared throughout fiscal 2021:

Revenue Growth (YOY)

Q1 2021

Q2 2021

Q3 2021

Q4 2021

FY 2021

AEC

26%

19%

17%

18%

20%

AutoCAD

23%

18%

14%

11%

16%

MFG

9%

6%

7%

17%

10%

M&E

16%

5%

7%

14%

10%

Total

20%

15%

13%

16%

16%

Data source: Autodesk. YOY = year over year.

Autodesk's business remained resilient throughout the pandemic, largely because it had already transformed most of its desktop software into subscription-based cloud services. That strategy, which Adobe also adopted over the past few years, locks in subscribers through economic downturns.

Its MFG and M&E businesses grew at a slower pace in the second and third fiscal quarters as the pandemic disrupted the manufacturing and media sectors, but most of those headwinds had faded by the end of the year.

A high retention rate and stable margins

Autodesk's net revenue retention rate also remained above 100% throughout fiscal 2021, meaning its existing customers continued to spend more money with the company despite the pandemic.

That healthy retention rate indicates Autodesk still has plenty of pricing power since many of its software products are considered indispensable in their respective industries.

That's why Autodesk's non-GAAP gross margin rose from 91.7% in fiscal 2020 to 92.6% in fiscal 2021. Its disciplined spending throughout the year also enabled it to maintain stable operating margins:

Operating Margin

Q1 2021

Q2 2021

Q3 2021

Q4 2021

FY 2021

GAAP

15%

16%

18%

18%

17%

Non-GAAP

28%

29%

30%

30%

29%

Data source: Autodesk.

Guidance missed the mark

Autodesk's fourth-quarter numbers looked solid, but its guidance was messy. For the first quarter of fiscal 2022, management expects revenue to rise 8% to 9% year over year, while adjusted EPS climb 7% to 13%. Both ranges fell short of analysts' expectations.

The company attributed that soft forecast to normal seasonal headwinds, a shorter quarter compared to the previous year, and a shift in the way Autodesk recognizes revenue from its data management service Vault.

For the full year, Autodesk expects revenue to rise 13% to 15%, which was in line with analysts' expectations. However, potential earnings growth of 18% to 25% fell short. To complicate things further, this guidance doesn't factor in the company's plan to strengthen its AEC business by purchasing Innovyze, a developer of water infrastructure software, for $1 billion in cash.

But during the conference call, CEO Andrew Anagnost predicted the Innovyze acquisition would be "accretive to revenue growth, broadly neutral to free cash flow, and a headwind on reported operating margins in fiscal 2022 and 2023." Those mixed results indicate the company will likely update its expectations for fiscal 2022 after the deal closes in the current quarter.

A solid company with a frothy valuation

There's still a lot to like about Autodesk. It generates consistent revenue growth, margins are healthy, and its cloud-based services are sticky. But at almost $280 per share, Autodesk trades at 56 times fiscal 2021 earnings.

That multiple, which is much higher than Adobe's forward P/E ratio of 41, suggests too many investors have already flocked to Autodesk as an opportunistic play during the pandemic. Therefore, I would hold off on buying into Autodesk until its stock cools off a bit in this very frothy market.

 
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.