Investors aiming for substantial price gains frequently use a two-part method: finding firms with solid basic expansion potential while also locating good moments to buy based on the chart. A tactic combining these areas looks for high-expansion stocks that are also displaying encouraging technical breakout formations. This process tries to locate firms not just set for longer-term growth but also demonstrating near-term speed that may indicate the beginning of a fresh rising price move. The objective is to match a company's core business health with a technically favorable time for purchase.
Cadence Design Systems Inc (NASDAQ:CDNS) appears as a possibility from this kind of screening. As a top supplier of electronic design automation (EDA) software, semiconductor intellectual property, and system design tools, Cadence is central to worldwide technology progress. Its software is necessary for creating the sophisticated chips and electronic systems that run all items from artificial intelligence and data centers to automotive and medical technology.
Basic Expansion Health
The core attraction of Cadence is found in its convincing expansion profile, a key requirement for this tactic since historical and expected growth are main forces behind a stock's longer-term possibility. The company's basic report, available in full here, gives it a Growth Rating of 7 out of 10, showing good results compared to other software industry companies.
Important expansion measures supporting this rating are:
- Notable Historical Expansion: In the last year, revenue increased by 19.72%, while earnings per share (EPS) rose by 28.52%. The five-year average yearly EPS growth is a solid 22.21%.
- Good Future Projection: Experts forecast continued expansion, with estimated yearly EPS growth of 13.14% and revenue growth of 11.93% in the next years.
- High Profitability: Backing its expansion is a first-class Profitability Rating of 9/10. The company has high margins, including an operating margin of 31.57% and a return on invested capital (ROIC) of 15.75%, which is much higher than its cost of capital, showing efficient value generation.
This mix of good historical performance, a sound future projection, and high profitability indicates Cadence has the basic engine needed for a lasting expansion stock.
Financial Condition and Price Context
While expansion is crucial, the tactic also needs "acceptable" financial condition to make sure the firm can manage economic changes and pay for its growth. Cadence's Health Rating of 6/10 shows a mostly sound but varied situation.
- Good Liquidity: The firm keeps a strong current ratio of 3.05 and a quick ratio of 2.84, showing sufficient ability to cover near-term debts.
- Controlled Debt: Its debt-to-free-cash-flow ratio is a sound 1.68, meaning it could clear all debt fast with its present cash flow. The debt/equity ratio of 0.48 is seen as acceptable.
- High Price: As is usual with top-quality expansion stocks, Cadence sells at a high price. Its Valuation Rating of 3/10 points to a high Price-to-Earnings (P/E) ratio of 45.95. This increased multiple is often accepted by the market for firms with Cadence's expansion path and profitability, but it does bring greater reaction to any profit letdowns.
Technical Picture for a Possible Breakout
The technical study part aims to find a time where price movement matches the positive basic story. Cadence's technical report, available here, mentions a low overall Technical Rating of 2/10, mainly because of neutral longer- and shorter-term trends. However, it points to a more interesting Setup Rating of 7/10, which concentrates on particular chart formations and close price points.
The present picture shows a standard consolidation formation:
- The stock has been moving in a set area between about $300 and $328 over the last month.
- It is now testing the top edge of this area, near a resistance zone between $323.36 and $327.32.
- A clear move above this resistance zone, ideally with more trading volume, could mark the finish of the consolidation period and the start of a new rising phase, confirming the technical "breakout" the screen is made to find.
- A defined support zone exists lower, around $316.97 to $321.56, which could act as a sensible area for a stop-loss order if a breakout try does not succeed.
This technical arrangement is exactly what the combined screening approach seeks: a basically sound firm whose stock price is tightening near an important level, possibly ready for a momentum shift.
Summary
Cadence Design Systems offers a situation where sound basic expansion measures meet a technical chart formation hinting at a possible turning point. The company's leading place in the crucial EDA market, along with its high profitability and good expansion projection, meets the central "expansion stock" needs. At the same time, its price activity, consolidating near a clear resistance level, provides a specific technical situation for investors who focus on purchase timing.
For investors wanting to examine other firms that fit this particular mix of sound expansion basics and encouraging technical pictures, more results can be located by using the Strong Growth Stocks with Good Technical Setup Ratings screen.
Disclaimer: This article is for information only and is not financial advice, a suggestion to buy or sell any security, or a support of any investment plan. Investing has risk, including the possible loss of original investment. You should do your own study and talk with a qualified financial advisor before making any investment choices.
