SNPS - Synopsys: Reasons To Hold Despite Perceived Overvaluation

2024-05-23 13:13:18 ET

Summary

• Synopsys provides software tools that help engineers design and verify chip designs, as well as monitor the chip manufacturing process.
• The company is in the process of completing a significant acquisition of Ansys by the first half of 2025.
• It is a beneficiary of the most significant technological megatrends today, including Artificial Intelligence, the electrification of autos, edge computing, and the Internet of Things.

Before Synopsys ( SNPS ) reported earnings on May 22, I had planned to write an article about the company, recommending a hold. Before earnings, I believed the market overvalued the stock and would be hard-pressed to satisfy investors' and analysts' expectations. That point of view seems justified after looking at the company's second-quarter 2024 earnings report. According to Seeking Alpha , the company missed analysts' revenue estimates by 4% and missed non-GAAP earnings-per-share ("EPS") estimates by close to 2%.

Since the stock reported fantastic earnings in its first quarter 2024 earnings report on February 21, it has stalled, with a brief journey in April below the price it was at before reporting first-quarter earnings. There is a good chance that the market won't push this stock much higher in the near term because of its high valuation and the uncertainty around its major acquisition of ANSYS ( ANSS ). ...

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