Synopsys (SNPS) Valuation Check After Recent Pullback And Premium P/E Multiple

Why Synopsys stock is drawing attention now

Synopsys (SNPS) is back on many investors’ radars after a recent pullback, with the share price down about 16% over the past month and roughly 10% over the past year.

See our latest analysis for Synopsys.

The 16.1% 30 day share price decline continues a weaker short term trend, although the 3 year total shareholder return of 15.8% and 5 year total shareholder return of 65.6% show a very different, longer term picture.

If Synopsys has you thinking about where AI related demand could go next, it may be worth scanning 34 AI infrastructure stocks as another way to spot potential beneficiaries of this theme.

With Synopsys now trading at $420.82 and carrying a low value score of 1, the question is whether recent weakness has created a genuine entry point or if the market is already pricing in years of future growth.

Most Popular Narrative: 24% Undervalued

The most followed narrative pegs Synopsys’ fair value at $553.40, well above the last close at $420.82, putting a spotlight on what is built into those forecasts.

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.

Curious what kind of revenue and earnings path supports that higher fair value, and what profit profile this narrative is baking in over time? The full story lays out those assumptions in detail.

Result: Fair Value of $553.40 (UNDERVALUED)

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

However, that upside story runs into real friction if China related restrictions linger or if the Ansys integration and headcount cuts weigh more heavily on growth and margins.

Find out about the key risks to this Synopsys narrative.

Another Angle On Synopsys’ Valuation

The popular narrative frames Synopsys as about 24% undervalued at $553.40, but the earnings multiple tells a very different story. At a P/E of 63x versus a US Software average of 25.4x and a fair ratio of 39.3x, the stock screens as expensive. That gap raises a simple question: are you paying up too far in advance for the growth story?

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

Next Steps

If this mix of signals leaves you undecided, it is worth checking the underlying numbers yourself and moving quickly to shape your own view. You can start with 2 key rewards and 2 important warning signs.

Ready to hunt for your next idea?

If Synopsys has sharpened your thinking, do not stop here. Use the screener to uncover other ideas before the next wave of opportunities moves on without you.

• Spot potential value early by reviewing companies in our screener containing 23 high quality undiscovered gems that the broader market may not be focused on yet.
• Prioritize resilience by checking out the 85 resilient stocks with low risk scores that score well on our risk metrics and may suit a steadier approach.
• Aim for quality at a reasonable price by scanning 53 high quality undervalued stocks with solid fundamentals that our models flag as attractively priced.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com