This past summer, I reviewed Synopsys's (NASDAQ:SNPS) third-quarter earnings report and pronounced the stock "cheap." Well, three-and-a-half months and one earnings report later, the stock's 20% cheaper (even after last week's double-digit gains). But here's the bad news: Cheaper ain't the same as "cheap."

The year past
Synopsys reported its Q4 and full-year numbers last week. Most major news outlets are focusing on the short-term, Q4-only story. But seeing as this was a (fiscal) year-end report, let's be Foolish and look at the big picture, why don't we? Here's how fiscal 2009 turned out for Synopsys:

  • Sales ended the year up 10% at $1.3 billion (helped by a 12% sprint in the final quarter).
  • Profits leapt 48% to top out at $1.29 per share, once again with strong Q4 performance (18% growth) giving the year-end tally a boost.

These days, gloom prevails within Synopsys' customer base – chip makers like Intel (NASDAQ:INTC) and Actions Semiconductor  (NASDAQ:ACTS), National Semiconductor (NYSE:NSM) and PMC-Sierra (NASDAQ:PMCS). The competition, too, is in disarray. Cadence Design (NASDAQ:CDNS) recently tried to grab Mentor Graphics (NASDAQ:MENT), but let slip its CEO instead.

In contrast, Synopsys seems confident it can thrive in the upcoming year. Fiscal 2009 guidance calls for roughly 8% sales growth to the $1.4 billion range (although earnings are expected to moderate, settling down about 10% at $1.16 or thereabouts).

The problem, future
More significant, though, to this Fool's ear, is the warning that cash from operations may be drying up. Whereas Synopsys generated in excess of $430 million in cash flow in fiscal 2007, and more than $330 million in the just-ended fiscal 2008, fiscal 2009 appears destined to produce just $210 million or so -- less than half last year's high-water mark.

Granted, capital expenditures are falling, too -- but not nearly as fast. Assuming the coming year sees a bit less capital spending than the year past, we're looking at cash profits of only about $170 million in 2009, or about what management expects for net income.

The present valuation
What this means, valuation-wise, is that Synopsys no longer looks as cheap as it did just three months ago. From a P/E perspective, the multiple of 14 seems rich relative to long-term growth expectations of 9%. Viewed from another angle, Synopsys sells for a forward enterprise value-to-free cash flow ratio of about 9 -- which looks like a fair price, but only just so.

Foolish takeaway
Much as I like the company, I wouldn't want to own it at today's price. Not, at least, until management finds a way to get its cash flow growing again. The present trend gives me chills.

For more on Synopsys, read:

Fool contributor Rich Smith does not own shares of any company named above. Intel is a Motley Fool Inside Value recommendation. The Fool owns shares and covered calls of Intel. The Motley Fool has a disclosure policy.