Investors aiming to benefit from large price gains frequently use a method that combines solid core business qualities with positive technical market formations. This method centers on finding companies with durable and steady expansion, firm earnings, and a good financial position, qualities that point to lasting promise. At the same time, it searches for favorable technical formations, like breakouts from periods of sideways movement, which can indicate a change in market feeling and the start of a fresh rising trend. The aim is to locate chances where a stock of a company with sound core qualities is positioned for a technical advance, presenting a combination of drivers for possible strong results.
One stock that recently appeared from this sort of filtering process is Cadence Design Systems Inc. (NASDAQ:CDNS), a top company in electronic design automation (EDA) software. The company supplies the essential tools and intellectual property required to design the sophisticated semiconductors driving progress in artificial intelligence, cloud computing, automotive, and other areas. We will look at why CDNS seems an interesting prospect based on the joined core and technical standards.
Core Strength: The Driver for Expansion
Central to this filtering method is the requirement for companies with solid expansion paths and the financial strength to maintain them. Cadence’s core profile, as shown in its ChartMill Fundamental Analysis Report, shows a business performing well across several important areas.
Earnings and Expansion Measures:
- Superior Earnings: Cadence receives a first-class Earnings Rating of 9 out of 10. The company displays notable margins, including an Operating Margin of 31.57%, which beats more than 92% of its software industry counterparts. Its Return on Invested Capital (ROIC) of 15.75% is also very good, showing effective use of capital to produce profits.
- Firm Past Expansion: The company has shown forceful profit and sales growth. Over the last year, Earnings Per Share (EPS) rose by 28.52% and Sales went up by 19.72%. The five-year average yearly EPS growth stands at a solid 22.21%.
- Good Financial Position: With a Financial Health Rating of 6, Cadence keeps a firm balance sheet. It has a strong Current Ratio of 3.05 and a very workable Debt to Free Cash Flow ratio of 1.68, indicating it could pay off all debt with under two years of cash flow. This financial steadiness is important for an expanding company, as it supplies the means to fund new development without being weighed down by debt.
While the Valuation Rating of 2 shows a high price, typical for top-tier expanding stocks, the filter accepts this when supported by exceptional expansion and earnings, which Cadence plainly shows. The company’s part in making next-generation chip design possible places it directly in a high-growth market, a main qualitative point for any expansion investment.
Technical Formation: Mapping the Route Ahead
A strong core story is most effective when the market’s price movement starts to agree. The technical inspection for CDNS, found in its ChartMill Technical Analysis Report, indicates a stock that might be forming for its next step.
Main Technical Notes:
- Sideways Movement and Resistance: After a large rise earlier in the year, CDNS has used recent months in a period of sideways movement and decline. This activity has lowered the stock price to check an important support area in the $283-$286 range, made by a mix of main moving averages and trend lines. Maintaining this support is a vital initial stage for any positive turn.
- Formation for an Advance: The stock’s present technical state has given it a Setup Rating of 7 out of 10. This rating implies the price structure is making a formation that might come before a new trend. For an advance to be verified, CDNS would need to move past nearby resistance levels, the first of which is between $310 and $313. A clear move above this area could signal a return of the longer-term upward trend.
- Market Setting: It is important to note that while the short and long-term trends for CDNS are now seen as negative, the stock has displayed comparative strength by doing better than 81% of its software industry counterparts over the past year. This toughness within its sector, even during a decline, can be a good signal once wider market states get better.
Summary: A Meeting of Points
Cadence Design Systems offers an interesting example for an expansion-and-advance method. In terms of core qualities, the company works in a necessary, growing market with top-tier earnings, steady past expansion, and a very firm financial footing. These are the signs of a business made for lasting gain. Technically, the stock is moving through an important point, having pulled back to a major support zone and creating a formation that often comes before a notable price step.
The investment idea depends on the chance for the company’s strong core qualities to finally be seen in the stock’s price movement through a technical advance. Investors using this method would look for CDNS to keep its main support and then gather speed to test and move above the noted resistance levels, which could start a new period of price movement.
This inspection of Cadence Design Systems (CDNS) was found using a set filter for strong expanding stocks with positive technical formations. If this method fits your investment style, you can examine other possible prospects by seeing the complete filter findings here.
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 method. All investments carry risk, including the possible loss of the original amount invested. Readers should do their own study and talk with a registered financial advisor before making any investment choices.
