Synopsys, Inc. (SNPS) is a provider of electronic design automation (EDA) software products. The stock has more than doubled since hitting its 52-week low of $104.80 on March 23, 2020. Over the past year, the stock has rallied 77% to close Friday’s trading session at $272.92. Its performance has been largely driven by the company’s ability to meet increasing market demand.
In addition, SNPS announced last week that it is collaborating with Microsoft Corporation (MSFT) on Rapid Assured Microelectronics Prototypes (RAMP). The partnership could be a key performance driver for SNPS.
The following factors could help SNPS maintain its momentum this year:
Increasing Need for Technical Advancements
The COVID-19 pandemic proved to be a major driver of rapid digitalization because most organizations were forced to resort to remote workforce structures to stay operational. Consequently, the demand for electronic systems surged significantly amid the pandemic. This placed SNPS in a favorable position because its products are at the “heart of innovations.”
The company’s chips are not only used in self-driving cars but also in machine learning. Given a rising dependence on technology solutions generally, SNPS is expected to witness increasing demand for its products.
Sustained Long-Term Growth
Having been in then business for more than 30 years, SNPS has established itself as one of the top companies in the EDA space. SNPS has been ranked #1 in Silicon Design & Verification and possesses the broadest portfolio of Silicon IP.
The company’s revenue has grown at a CAGR of 10.6% over the past three years. While SNPS’ EPS grew at a CAGR of 69.3% over the same period, its EBITDA grew at a CAGR of 16.8%.
Growing Adoption of SNPS Products
As announced by the company on January 19, Sondrel has adopted the Synopsys Fusion Design and Verification Continuum platforms to accelerate the design and verification of large, complex system-on-chip (SoC) designs for automotive, AI, machine learning, IoT, consumer AR/VR gaming and security applications.
On January 27, SNPS announced the availability of the DesignWare Integrity and Data Encryption (IDE) security modules. The modules will help designers protect against data tampering and physical attacks in high-performance computing (HPC) SoCs that use the PCI Express 5.0 architecture or Compute Express Link 2.0 interface.
Strong Revenue Growth Across Products and Regions
For the fiscal 2020 fourth quarter (ended October 31, 2020), SNPS’ top line increased 20.5% year-over-year to $1.03 billion. Its revenue from the EDA segment, which accounted for 56.6% of its total revenue, increased 18.7% year-over-year to $580.5 million. And revenue from the IP & System Integration segment increased 27.7% year-over-year. Its revenue from software integrity increased 6.4% year-over-year.
Reviewing by region, the company’s revenue from the North America region was reported at $536.9 million for the fiscal 2020 fourth quarter, which accounted for more than 52% of total revenue. The Asia Pacific region came second, reporting revenue of $205.8 million over the same period, up 29% year-over-year.
Our POWR Ratings Show Significant Upside
SNPS has an overall rating of A, which equates to Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. The stock’s impressive price performance over the past months has led to a grade of B for Momentum. SNPS has gained 35.4% over the past 6 months and 5.4% over the past month.
SNPS also has a grade B for Growth, indicating that the stock still has plenty of upside. Analysts expect the company’s revenue to increase 9.3% this year and 8.3% next year. EPS is expected to grow 45.5% for the quarter ended January 31, 2021.
Beyond what I have stated above, you can also find SNPS’ ratings for Stability, Quality, Value and Sentiment by clicking here.
In the B-rated Technology – Hardware industry, SNPS is ranked #5 of 53 stocks. There are eight other top-rated stocks in the same industry, and you can view them here.
SNPS is a great pick considering the company’s impressive financials, consistent product innovations and favorable analyst sentiment. In fact, of the 14 Wall Street analysts that have rated the stock, 13 have rated it a Strong Buy or Buy. So, now is a good time to add this stock to your portfolio.
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SNPS shares were trading at $276.22 per share on Monday afternoon, up $3.30 (+1.21%). Year-to-date, SNPS has gained 6.55%, versus a 4.04% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More…
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