Despite a recently slumping stock price, architectural design-software firm Autodesk (NASDAQ:ADSK) has rewarded its shareholders generously over the past five years, nearly quadrupling in value. I expect the stock will resume its upward rise when Q4 and full-year 2005 earnings are released tomorrow. Read on to see why.

Wall Street Wisdom:

  • General consensus. Fourteen analysts do paperwork on Autodesk. Five of them rate the stock a buy, nine more a hold, but no one a sell.
  • Revenues. Revenues for the fourth quarter of 2005 are believed to have increased 16% year over year to $413.8 million.
  • Earnings. Analysts project that profits will do even better, rising 17% to $0.35 per share.

Margin watch:
It's no secret that software firms have great margins. The great Bubble burst notwithstanding, long-term investors in Microsoft (NASDAQ:MSFT) and Oracle (NASDAQ:ORCL) -- and Autodesk -- have ridden this truism to riches over the past decade. What's best about Autodesk, though, is that its margins are continuing to grow. Over the past 18 months, both the firm's rolling operating margin and its rolling net have increased by 670 basis points -- a nearly 50% increase in the latter case.

Margins %

7/04

10/04

1/05

4/05

7/05

10/05

Gross

85.9

86.1

86.3

86.7

87.3

88.1

Op.

18.2

19.8

21.2

22.9

24.0

24.9

Net

14.6

18.2

18.0

19.8

21.0

21.3

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

Foolish lookout:
Three months ago, Autodesk's CEO Carol Bartz said she was "very confident" about the firm's future, and backed that sentiment up with raised guidance for the fourth quarter. The stock market is now discounting the firm's chances of meeting estimates tomorrow. I think that's a mistake. Autodesk has beaten analyst estimates for 25 straight quarters, and the firm has issued no earnings warning since it last raised guidance. Considering the trends in Autodesk's margins, and its record of more than six years of success, I see little reason to expect Autodesk to stumble tomorrow.

Valuation metrics:
Autodesk sports a premium multiple even after the recent share price weakness: 30 times trailing earnings. But on a cash profits basis, the firm trades for just 21 times free cash flow, yet boasts a return on equity of twice that, alongside a rock solid balance sheet holding $550 million in net cash. Is Autodesk a steal? No. But is it a great company at a good price? Absolutely.

Microsoft is a Motley Fool Inside Value recommendation.

Fool contributor Rich Smith does not own shares of any company named above.