We assign a fundamental rating of 6 out of 10 to CDNS. CDNS was compared to 278 industry peers in the Software industry. While CDNS belongs to the best of the industry regarding profitability, there are some minor concerns on its financial health. CDNS is valued quite expensive, but it does show an excellent growth. These ratings could make CDNS a good candidate for growth investing.

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1. Profitability

2. Health

3. Growth

4. Valuation

5. Dividend

1. Profitability

1.1 Basic Checks

CDNS had positive earnings in the past year.
In the past year CDNS had a positive cash flow from operations.
CDNS had positive earnings in each of the past 5 years.
In the past 5 years CDNS always reported a positive cash flow from operatings.

1.2 Ratios

With an excellent Return On Assets value of 11.05%, CDNS belongs to the best of the industry, outperforming 86.33% of the companies in the same industry.
The Return On Equity of CDNS (20.41%) is better than 88.13% of its industry peers.
Looking at the Return On Invested Capital, with a value of 15.75%, CDNS belongs to the top of the industry, outperforming 92.81% of the companies in the same industry.
The Average Return On Invested Capital over the past 3 years for CDNS is significantly above the industry average of 10.76%.
The last Return On Invested Capital (15.75%) for CDNS is well below the 3 year average (20.16%), which needs to be investigated, but indicates that CDNS had better years and this may not be a problem.

		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

CDNS has a Profit Margin of 20.35%. This is amongst the best in the industry. CDNS outperforms 84.53% of its industry peers.
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 better Gross Margin (85.55%) than 92.81% of its industry peers.
In the last couple of years the Gross Margin of CDNS has remained more or less at the same level.

		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

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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.
Compared to 1 year ago, CDNS has more shares outstanding
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.
CDNS's Debt to FCF ratio of 1.68 is fine compared to the rest of the industry. CDNS outperforms 70.14% of its industry peers.
A Debt/Equity ratio of 0.48 indicates that CDNS is not too dependend on debt financing.
The Debt to Equity ratio of CDNS (0.48) is worse than 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

A Current Ratio of 3.05 indicates that CDNS has no problem at all paying its short term obligations.
Looking at the Current ratio, with a value of 3.05, CDNS is in the better half of the industry, outperforming 75.54% of the companies in the same industry.
A Quick Ratio of 2.84 indicates that CDNS has no problem at all paying its short term obligations.
The Quick ratio of CDNS (2.84) is better than 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.
CDNS shows a strong growth in Earnings Per Share. Measured over the last years, the EPS has been growing by 22.21% yearly.
The Revenue has grown by 19.72% in the past year. This is quite good.
Measured over the past years, CDNS shows a quite strong growth in Revenue. The Revenue has been growing by 14.72% on average per year.

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

CDNS is expected to show quite a strong growth in Earnings Per Share. In the coming years, the EPS will grow by 13.14% yearly.
The Revenue is expected to grow by 11.93% on average over the next years. This is quite good.

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

The Price/Earnings ratio is 45.81, which means the current valuation is very expensive for CDNS.
The rest of the industry has a similar Price/Earnings ratio as CDNS.
CDNS's Price/Earnings ratio indicates a rather expensive valuation when compared to the S&P500 average which is at 27.25.
A Price/Forward Earnings ratio of 39.20 indicates a quite expensive valuation of CDNS.
CDNS's Price/Forward Earnings ratio is in line with the industry average.
The average S&P500 Price/Forward Earnings ratio is at 25.98. CDNS is valued rather expensively when compared to this.

		Industry Rank	Sector Rank
PE	45.81
Fwd PE	39.2

4.2 Price Multiples

CDNS's Enterprise Value to EBITDA ratio is a bit cheaper when compared to the industry. CDNS is cheaper than 61.51% of the companies in the same industry.
Compared to the rest of the industry, the Price/Free Cash Flow ratio of CDNS is on the same level as its industry peers.

		Industry Rank	Sector Rank
P/FCF	59.28
EV/EBITDA	46.34

4.3 Compensation for Growth

The high PEG Ratio(NY), which compensates the Price/Earnings for growth, indicates CDNS does not grow enough to justify the current Price/Earnings ratio.
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.