Taking everything into account, CDNS scores 6 out of 10 in our fundamental rating. CDNS was compared to 278 industry peers in the Software industry. CDNS scores excellent on profitability, but there are some minor concerns on its financial health. CDNS is valued quite expensively, but it does show have an excellent growth rating. 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.
In the past year CDNS had a positive cash flow from operations.
CDNS had positive earnings in each of the past 5 years.
CDNS had a positive operating cash flow in each of the past 5 years.

1.2 Ratios

Looking at the Return On Assets, with a value of 11.05%, CDNS belongs to the top of the industry, outperforming 86.33% of the companies in the same industry.
CDNS's Return On Equity of 20.41% is amongst the best of 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.
The Average Return On Invested Capital over the past 3 years for CDNS is significantly above the industry average of 10.73%.
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

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.
CDNS has a Operating Margin of 31.57%. This is amongst the best in the industry. CDNS outperforms 93.17% of its industry peers.
CDNS's Operating Margin has improved in the last couple of years.
With an excellent Gross Margin value of 85.55%, CDNS belongs to the best of the industry, outperforming 92.81% of the companies in the same industry.
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

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

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.
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

WACC11.05%

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 Current ratio of 3.05. This is in the better half of the industry: CDNS outperforms 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's Quick ratio of 2.84 is fine compared to the rest 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

The Earnings Per Share has grown by an impressive 28.52% over the past year.
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.
CDNS shows quite a strong growth in Revenue. Measured over the last years, the Revenue has been growing by 14.72% yearly.

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

Based on estimates for the next years, CDNS will show a quite strong growth in Earnings Per Share. The EPS will grow by 13.14% on average per year.
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

Although the future EPS growth is still strong, it is not able to hold up the even more excellent growth rate of 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 43.05, the valuation of CDNS can be described as expensive.
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 28.39.
The Price/Forward Earnings ratio is 36.84, which means the current valuation is very expensive for CDNS.
CDNS's Price/Forward Earnings is on the same level as the industry average.
The average S&P500 Price/Forward Earnings ratio is at 25.72. CDNS is valued slightly more expensive when compared to this.

		Industry Rank	Sector Rank
PE	43.05
Fwd PE	36.84

4.2 Price Multiples

Based on the Enterprise Value to EBITDA ratio, CDNS is valued a bit cheaper than 60.79% of the companies in the same industry.
CDNS's Price/Free Cash Flow is on the same level as the industry average.

		Industry Rank	Sector Rank
P/FCF	55.72
EV/EBITDA	44.06

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.
A more expensive valuation may be justified as CDNS's earnings are expected to grow with 16.39% in the coming years.