So you think Autodesk
The veteran maker of 3-D modeling and drafting software just reported a strong second quarter -- but was it strong enough to justify the stock price? The bottom line improved to $0.05 of earnings per diluted share, a huge leap from last quarter's $0.14 loss per share. The profit was a result of tight cost controls rather than organic growth, since revenue fell 3% quarter-over-quarter to $415 million.
Autodesk saw sequential improvement across many geographic and product-line business segments, so there are cautious signs of a rebound in parts of the business. Industry demand for Autodesk's AutoCAD and 3-D design and video software never completely dies. But it's also a darn expensive company, at least by some popular metrics: Autodesk's price-to-earnings ratio is in nosebleed territory.
Trading at over 100 times trailing earnings, Autodesk looks more expensive than usual high-growth suspects like Google
With shares trading at 2.7 times sales, Autodesk actually looks very fairly valued when compared with its peers in the software industry. Adobe Systems
At 27 times free cash flow, cash flow metrics may be another reason to scare investors away from Autodesk. Using a price-to-sales ratio against competitors doesn't mean much if the company is generating less profit on their sales, as has been the case with Autodesk. However, I believe we're looking at a temporary situation. Autodesk is generally a reliable cash machine, but this recession has hit the company hard. Only yesterday, the shares were worth a perfectly normal 15 times trailing free cash flows. Over $188 million of cash from the year-ago period just dropped off that trailing twelve-month range.
Autodesk will get back to its old cash-rich habits soon enough. Maintenance revenue held firm on a year-over-year basis, while revenue drop-off was primarily in due to anemic new licensing sales. Since Autodesk's products are so essential to many corporate customers, it should see robust growth once IT budgets come back to life and have budget to upgrade rather than skim by on aging software. And when they do, Autodesk will look cheap all around.
Would you buy Autodesk today? Share your thoughts in the comments box below.
Google and VMware are Motley Fool Rule Breakers recommendations. Apple is a Motley Fool Stock Advisor recommendation. The Fool owns shares of Autodesk. 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 if you like, and The Motley Fool is investors writing for investors.
More from The Motley Fool
Why Shares of Autodesk, Inc. Popped 42% in 2017
A new subscription-based business model is impressing investors already.
Autodesk (ADSK) Q3 2018 Earnings Conference Call Transcript
Autodesk earnings call for the period ending September 30, 2017.
Autodesk Returns to Sales Growth
But investors weren't excited about the software specialist's plans to lay off over 10% of its workforce.