The stock market has been incredibly volatile, especially among growth stocks. With many companies falling 40%, 50%, or even 60% off their all-time highs, it can be painful to endure these steep losses. Therefore, many investors might look for more resilient companies for their portfolios.
Autodesk (ADSK 1.95%) could be right for these investors. Shares of the design software business are down 27% year to date, which is much better than other tech stocks. Despite this lower short-term volatility, the company has still crushed the market over the past decade with over 550% returns. Therefore, if you're worried about another market dip and you're looking for a combination of growth and stability, Autodesk might be for you.
What makes Autodesk a stable stock
One of the reasons this design software company's stock has been so resilient is because it provides mission-critical services that are very sticky. Autodesk's AutoCAD (computer-aided design) software is a dominant force in the industry with 37% market share. Additionally, it is the top dog in the construction space.
More importantly, the company will likely maintain this lead. Once someone learns how to operate these tools and integrates them into their operations, it can be incredibly challenging to shift to a different platform. This might be why the company's revenue increased 17% year over year in its fiscal second quarter (which ended July 31, 2022) to $1.2 billion, despite the challenging macroeconomic picture.
Another reason to like this stock during market turmoil is its shareholder-friendly actions. So far this fiscal year, Autodesk has repurchased $708 million of stock, a 256% increase versus the year-ago period.
Another great quarter
As Autodesk CEO Andrew Anagnost explains, the company's dominance helped it see almost no impact from the challenging environment the world is in today: "Renewal rates were again excellent. All of this and our strong competitive performance more than offset the direct and indirect impact of geopolitical, macroeconomic, policy, and COVID-19-related factors."
This is also seen through the demand from Autodesk's largest customers. The company closed seven deals over $500,000 in Q2, three of which were over $1 million. This shows that businesses continue to rely heavily on Autodesk and are willing to pay up for its services, even with a troublesome economy on the horizon.
Autodesk also continued to gush cash. In Q2, the company posted an operating margin of 20% and a free cash flow margin of 20%. Additionally, Autodesk expects a free cash flow margin of 41% for the full year. This cash can help the business maintain its leadership position, and there's likely enough left over to fund its emerging opportunities.
What will Autodesk look like in 2032?
Autodesk primarily operates in the pre-construction phase of a business' operations, helping builders plan projects. However, the company is emerging as a serious player in the project management space, too -- an area in which it's already starting to see success. In Q2, the company landed a customer using its pre-construction tools and Autodesk Build -- its project management tool.
The company is targeting an opportunity that management believes is worth $36 billion in the construction, engineering, and architecture market alone. That's not to mention its presence in the manufacturing or media and entertainment fields. Considering the company is expected to generate roughly $5 billion in revenue this fiscal year, Autodesk has only scratched the surface of its full potential.
Is now the time to buy Autodesk?
The primary downside of this stock is that shares aren't cheap. The company trades at 28 times free cash flow, which is high compared to the broader tech landscape. That said, shares are much cheaper than that of rivals like Procore Technologies (PCOR -1.89%).
Even with its high valuation, Autodesk might be worth buying today. The company's competitive advantages have allowed it to see healthy adoption, which could continue for the long haul. With its lucrative expansion into emerging business segments, there's still a lot of room to run for Autodesk. On the flip side, this company has provided stable returns for shareholders. So if you're looking for the benefits of a growth stock with the low volatility of sturdy stocks, Autodesk might be for you.