AUTODESK INC (NASDAQ:ADSK): A Strong Affordable Growth Pick with Solid Fundamentals

Investors looking for growth opportunities at fair prices often consider the "Affordable Growth" strategy. This method finds companies with solid growth potential that are not overpriced. It selects stocks with a growth rating above 7, good profitability and financial health, and a valuation score above 5, ensuring the stock is priced fairly relative to its fundamentals. AUTODESK INC (NASDAQ:ADSK) meets these conditions, making it a strong option for investors seeking growth at a reasonable price (GARP).

Why AUTODESK (ADSK) Meets the Affordable Growth Standards

1. Solid Growth Potential

AUTODESK’s growth metrics are a major reason for its inclusion. The company has shown:

• Revenue Growth: Revenue rose by 12.44% over the past year, with a five-year average growth rate of 13.37%, reflecting steady progress.
• Earnings Per Share (EPS) Growth: EPS increased by 12.09% in the last year, with a five-year average growth rate of 24.81%.
• Future Outlook: Analysts predict annual EPS growth of 13.92% and revenue growth of 11.11%, supporting its ongoing growth path.

These figures indicate AUTODESK is growing sustainably, a key factor for GARP investors who want companies with both past and future growth.

2. Fair Valuation

AUTODESK isn’t inexpensive, but its valuation makes sense compared to its growth and industry peers:

• P/E Ratio: At 31.80, it’s higher than the S&P 500 average (26.73), but 63.96% of its software industry peers are more expensive.
• Forward P/E: The forward P/E of 25.08 is below the S&P 500’s average (34.61), offering a better entry point.
• Enterprise Value/EBITDA & Price/FCF: AUTODESK is cheaper than 67.14% of its industry based on EV/EBITDA and 66.78% on Price/FCF, showing good value for its cash flow.

The valuation score of 5/10 suggests a balanced view—not too cheap or too expensive, matching the Affordable Growth strategy’s focus on fair pricing.

3. Strong Profitability

AUTODESK performs well in profitability, scoring 9/10, supported by:

• High Margins: A gross margin of 90.53% (better than 98.23% of peers) and an operating margin of 22.18% (above 89.05% of competitors).
• Effective Capital Use: Return on Equity (ROE) of 38.67% and Return on Invested Capital (ROIC) of 19.89% exceed industry averages, showing efficient use of earnings.

Strong profitability helps sustain growth without sacrificing margins.

4. Decent but Mixed Financial Health

With a health score of 6/10, AUTODESK has strengths and minor issues:

• Low Bankruptcy Risk: An Altman-Z score of 5.21 indicates financial stability.
• Debt Management: The debt-to-equity ratio (0.76) is higher than 70.67% of peers, but free cash flow covers debt well (Debt/FCF of 1.43).
• Liquidity Concerns: The current and quick ratios (both 0.65) are below industry norms, but strong cash flow reduces short-term liquidity risks.

For Affordable Growth investors, financial health is vital to ensure the company can maintain growth without too much debt—a requirement AUTODESK mostly meets.

Conclusion: A Well-Rounded Growth Pick

AUTODESK’s mix of strong growth, fair valuation, high profitability, and decent financial health makes it a good choice for investors using the Affordable Growth strategy. While it has minor weaknesses (e.g., liquidity ratios), its overall fundamentals point to a company that can deliver growth without being overpriced.

For more stocks that fit similar criteria, check out our Affordable Growth Screen.

Disclaimer: This article is not investment advice. Investors should do their own research or consult a financial advisor before making decisions.