We assign a fundamental rating of 6 out of 10 to CDNS. CDNS was compared to 278 industry peers in the Software industry. CDNS has an excellent profitability rating, but there are some minor concerns on its financial health. CDNS shows excellent growth, but is valued quite expensive already. These ratings would make CDNS suitable for growth investing!

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1. Profitability

2. Health

3. Growth

4. Valuation

5. Dividend

1. Profitability

1.1 Basic Checks

In the past year CDNS was profitable.
CDNS had a positive operating cash flow in the past year.
In the past 5 years CDNS has always been profitable.
Each year in the past 5 years CDNS had a positive operating cash flow.

1.2 Ratios

CDNS has a better Return On Assets (11.05%) than 86.33% of its industry peers.
CDNS has a Return On Equity of 20.41%. This is amongst the best in the industry. CDNS outperforms 88.13% of its industry peers.
CDNS has a better Return On Invested Capital (15.75%) than 92.81% of its industry peers.
CDNS had an Average Return On Invested Capital over the past 3 years of 20.16%. This is significantly above the industry average of 10.76%.
The 3 year average ROIC (20.16%) for CDNS is well above the current ROIC(15.75%). The reason for the recent decline needs to be investigated.

		Industry Rank	Sector Rank
ROA	11.05%
ROE	20.41%
ROIC	15.75%

ROA(3y)15.55%

ROA(5y)15.49%

ROE(3y)28.03%

ROE(5y)26.64%

ROIC(3y)20.16%

ROIC(5y)18.92%

1.3 Margins

With an excellent Profit Margin value of 20.35%, CDNS belongs to the best of the industry, outperforming 84.53% of the companies in the same industry.
In the last couple of years the Profit Margin of CDNS has declined.
Looking at the Operating Margin, with a value of 31.57%, CDNS belongs to the top of the industry, outperforming 93.17% of the companies in the same industry.
CDNS's Operating Margin has improved in the last couple of years.
CDNS has a Gross Margin of 85.55%. This is amongst the best in the industry. CDNS outperforms 92.81% of its industry peers.
CDNS's Gross Margin has been stable in the last couple of years.

		Industry Rank	Sector Rank
OM	31.57%
PM (TTM)	20.35%
GM	85.55%

OM growth 3Y4.75%

OM growth 5Y6.92%

PM growth 3Y-0.79%

PM growth 5Y-11.69%

GM growth 3Y-1.39%

GM growth 5Y-0.58%

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ROA

ROE

ROIC

Operating and Profit Margin

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2. Health

2.1 Basic Checks

The Return on Invested Capital (ROIC) is well above the Cost of Capital (WACC), so CDNS is creating value.
CDNS has more shares outstanding than it did 1 year ago.
The number of shares outstanding for CDNS has been reduced compared to 5 years ago.
Compared to 1 year ago, CDNS has a worse debt to assets ratio.

2.2 Solvency

The Debt to FCF ratio of CDNS is 1.68, which is an excellent value as it means it would take CDNS, only 1.68 years of fcf income to pay off all of its debts.
With a decent Debt to FCF ratio value of 1.68, CDNS is doing good in the industry, outperforming 70.14% of the companies in the same industry.
CDNS has a Debt/Equity ratio of 0.48. This is a healthy value indicating a solid balance between debt and equity.
CDNS has a Debt to Equity ratio of 0.48. This is in the lower half of the industry: CDNS underperforms 65.47% of its industry peers.
Although CDNS does not score too well on debt/equity it has very limited outstanding debt, which is well covered by the FCF. We will not put too much weight on the debt/equity number as it may be because of low equity, which could be a consequence of a share buyback program for instance. This needs to be investigated.

		Industry Rank	Sector Rank
Debt/Equity	0.48
Debt/FCF	1.68
Altman-Z	N/A

ROIC/WACC1.43

WACC11.04%

2.3 Liquidity

CDNS has a Current Ratio of 3.05. This indicates that CDNS is financially healthy and has no problem in meeting its short term obligations.
CDNS has a better Current ratio (3.05) than 75.54% of its industry peers.
CDNS has a Quick Ratio of 2.84. This indicates that CDNS is financially healthy and has no problem in meeting its short term obligations.
CDNS has a Quick ratio of 2.84. This is in the better half of the industry: CDNS outperforms 74.46% of its industry peers.

		Industry Rank	Sector Rank
Current Ratio	3.05
Quick Ratio	2.84

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WACC

Debt/Equity

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Altman-Z score

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3. Growth

3.1 Past

CDNS shows a strong growth in Earnings Per Share. In the last year, the EPS has been growing by 28.52%, which is quite impressive.
The Earnings Per Share has been growing by 22.21% on average over the past years. This is a very strong growth
Looking at the last year, CDNS shows a quite strong growth in Revenue. The Revenue has grown by 19.72% in the last year.
The Revenue has been growing by 14.72% on average over the past years. This is quite good.

EPS 1Y (TTM)28.52%

EPS 3Y21.73%

EPS 5Y22.21%

EPS Q2Q%17.68%

Revenue 1Y (TTM)19.72%

Revenue growth 3Y15.81%

Revenue growth 5Y14.72%

Sales Q2Q%10.15%

3.2 Future

The Earnings Per Share is expected to grow by 13.14% on average over the next years. This is quite good.
Based on estimates for the next years, CDNS will show a quite strong growth in Revenue. The Revenue will grow by 11.93% on average per year.

EPS Next Y20.59%

EPS Next 2Y17.31%

EPS Next 3Y16.39%

EPS Next 5Y13.14%

Revenue Next Year13.96%

Revenue Next 2Y13.23%

Revenue Next 3Y12.93%

Revenue Next 5Y11.93%

3.3 Evolution

The estimated forward EPS growth is still strong, although it is decreasing when compared to the stronger growth in the past years.
The Revenue growth rate is stable: in the next years the growth will be about the same than in the last years.

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4. Valuation

4.1 Price/Earnings Ratio

Based on the Price/Earnings ratio of 45.81, the valuation of CDNS can be described as expensive.
CDNS's Price/Earnings is on the same level as the industry average.
CDNS is valuated expensively when we compare the Price/Earnings ratio to 27.25, which is the current average of the S&P500 Index.
CDNS is valuated quite expensively with a Price/Forward Earnings ratio of 39.20.
CDNS's Price/Forward Earnings ratio is in line with the industry average.
CDNS's Price/Forward Earnings ratio indicates a rather expensive valuation when compared to the S&P500 average which is at 25.98.

		Industry Rank	Sector Rank
PE	45.81
Fwd PE	39.2

4.2 Price Multiples

Based on the Enterprise Value to EBITDA ratio, CDNS is valued a bit cheaper than the industry average as 61.51% of the companies are valued more expensively.
CDNS's Price/Free Cash Flow is on the same level as the industry average.

		Industry Rank	Sector Rank
P/FCF	59.28
EV/EBITDA	46.89

4.3 Compensation for Growth

The high PEG Ratio(NY), which compensates the Price/Earnings for growth, indicates an expensive valuation of the company.
CDNS has an outstanding profitability rating, which may justify a higher PE ratio.
CDNS's earnings are expected to grow with 16.39% in the coming years. This may justify a more expensive valuation.