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Autodesk Is Cheap, but Not Psychic

By Anders Bylund - Updated Apr 5, 2017 at 7:13PM

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Clairvoyant claims are the furthest thing from management's mind.

In a massive economic downturn like this one, it's tough to talk businesses into new investments in their IT infrastructure. Some businesses don't even know how they'll survive the credit crunch, much less plan for the future. And the wrong stocks are getting punished for that problem.

Enterprise software developer Autodesk (NASDAQ:ADSK) is learning that lesson today -- the very hard way. The company reported third-quarter earnings of $0.45 per diluted share, up from $0.35 per share a year ago. Sales grew 13% year over year to $607 million. And the stock took a 20% plunge overnight, and now is down over 70% from last year. This is not limited to just Autodesk. Rival Parametric Technology Corporation (NASDAQ:PMTC) is also struggling, as it is down more than 43%.

I bet you know what's coming. Autodesk dared to take present market conditions into account when forecasting its own immediate future, which led to disappointing guidance. Fourth-quarter earnings are headed for about half of what the average Wall Street analyst had expected, thanks to slower sales. I appreciate the management team's candor in difficult times. "We realize that there is no quick or easy response to the current economic environment," said Autodesk CEO Carl Bass. 

We need to see liquidity in the system. Our customers depend upon it to run our business and I think truthfully if you look right now, we don't have functioning financial systems to the level that allowed normal businesses to do their job. And in an environment in which people can't get credit, the first things on their minds is not how much more software do I need to buy.

Ain't that the truth. Under these conditions, I don't see a whole lot to smile about in the IT sector at large, except for a plethora of well-managed businesses that got hit way too hard by Mr. Market's knee-jerk reactions to the financial market's meltdown. Autodesk still expects to post a profit next quarter, despite the sharp downturn. The company has around $800 million in cash and cash equivalents on hand, with very little debt. The company also has generated over $500 in operating cash flow for the first nine months.

Given all of these positive facts, I'd put Autodesk in the same category as virtualization specialist VMware (NYSE:VMW) or information security expert VASCO Data Security (NASDAQ:VDSI). They're all smallish-cap tech stocks that trade at panic-stricken lows despite excellent business prospects and secure financial health. It just ain't right, and we might as well profit from this mispricing.

Further Foolishness:

VMware is a Motley Fool Rule Breakers recommendation. VASCO Data Security International is a Motley Fool Stock Advisor pick. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Anders Bylund owns shares in Google, but he holds no other position in any of the companies discussed here. You can check out Anders' holdings or a concise bio. The Motley Fool is investors writing for investors.

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Stocks Mentioned

Autodesk, Inc. Stock Quote
Autodesk, Inc.
$218.14 (-1.16%) $-2.55
VMware, Inc. Stock Quote
VMware, Inc.
$116.56 (-0.56%) $0.65
PTC Inc. Stock Quote
PTC Inc.
$119.88 (0.46%) $0.55
VASCO Data Security International, Inc. Stock Quote
VASCO Data Security International, Inc.
$10.87 (-1.54%) $0.17

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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