Stock Analysis

Investing in Cadence Design Systems (NASDAQ:CDNS) five years ago would have delivered you a 301% gain

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NasdaqGS:CDNS
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Long term investing can be life changing when you buy and hold the truly great businesses. While the best companies are hard to find, but they can generate massive returns over long periods. To wit, the Cadence Design Systems, Inc. (NASDAQ:CDNS) share price has soared 301% over five years. This just goes to show the value creation that some businesses can achieve. And in the last month, the share price has gained 14%.

Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.

Check out the opportunities and risks within the US Software industry.

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Over half a decade, Cadence Design Systems managed to grow its earnings per share at 25% a year. This EPS growth is slower than the share price growth of 32% per year, over the same period. This suggests that market participants hold the company in higher regard, these days. And that's hardly shocking given the track record of growth. This optimism is visible in its fairly high P/E ratio of 60.11.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

earnings-per-share-growth
NasdaqGS:CDNS Earnings Per Share Growth December 1st 2022

We know that Cadence Design Systems has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.

A Different Perspective

While it's never nice to take a loss, Cadence Design Systems shareholders can take comfort that their trailing twelve month loss of 1.7% wasn't as bad as the market loss of around 14%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 32% for each year. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.

But note: Cadence Design Systems may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

What are the risks and opportunities for Cadence Design Systems?

Cadence Design Systems, Inc. provides software, hardware, services, and reusable integrated circuit (IC) design blocks worldwide.

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Rewards

  • Earnings are forecast to grow 17.23% per year

  • Earnings grew by 13.3% over the past year

Risks

  • Significant insider selling over the past 3 months

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Cadence Design Systems

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