Synopsys (SNPS): Evaluating Valuation After Class Action Lawsuit and Design IP Segment Struggles

Synopsys (SNPS) is under the spotlight after a class action lawsuit was filed. The lawsuit accuses the company and some executives of misleading investors about challenges in its Design IP business connected to increased AI customer demand.

See our latest analysis for Synopsys.

It has been a volatile period for Synopsys, with the share price tumbling almost 36% in a single day after the recent lawsuit and disappointing Q3 results came to light. The moves capped off a rough stretch for the stock, which is now down nearly 20% over the past month and has posted a one-year total shareholder return of -29.9%. However, the five-year total return is still up an impressive 73.9%. All eyes are on whether momentum can recover as management works through leadership changes and ongoing challenges in its Design IP segment.

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With the stock now trading well below its recent highs and analyst price targets, the big question remains: has the recent turmoil created a genuine buying opportunity for Synopsys, or is the market already factoring in future risks and growth?

Most Popular Narrative: 29% Undervalued

Compared to its last close at $393.43, the most widely followed narrative suggests Synopsys has a fair value of $556.4. This is a notable premium that reflects expectations for recovery and future growth. The narrative’s point of view is shaped by Synopsys’ transformation strategy and focus on high-value opportunities.

The ongoing transformation towards SaaS/cloud-based EDA and Ansys product integration is expected to increase customer stickiness and shift more revenues to subscription and service models, improving revenue visibility and earnings consistency. This directly addresses operational headwinds and is likely underappreciated if the stock is undervalued.

Read the complete narrative.

Want to know how Synopsys plans to turn present turmoil into future stability? The narrative depends on ambitious forecasts for sales, stronger margins, and a premium multiple typically reserved for industry innovators. The math behind this valuation may surprise you, so see exactly which bullish assumptions drive this call by reading the full narrative.

Result: Fair Value of $556.4 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, persistent weakness in the IP segment and ongoing uncertainty in China could undermine the optimistic scenario that many investors are hoping for.

Find out about the key risks to this Synopsys narrative.

Another View: Multiples Send a Mixed Signal

Taking a look at how Synopsys is valued through its price-to-earnings ratio, we find the stock trading at 62.6 times earnings, which is well above the US Software industry average of 34.3 and higher than its calculated fair ratio of 45.4. This suggests investors are currently pricing in significant optimism, raising the stakes in either direction. Is the premium justified, or does it point to future risk?

See what the numbers say about this price — find out in our valuation breakdown.

Build Your Own Synopsys Narrative

If you want to dig deeper or believe a different story is unfolding, you can craft your own perspective in just a few minutes. Do it your way

A great starting point for your Synopsys research is our analysis highlighting 3 key rewards and 3 important warning signs that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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