Chip Design. (Electronic Design Automation) Pick and Shovels semi and AI play.
I had looked at this company a couple of weeks ago and just checked my notes – “Where’s the growth for a P/E of 42 and a P/S ratio of 13?”
Yeah, it’s a 15% earnings grower, so that’s a PEG (Price Earning to Growth) of 3 and a 12% revenue grower, that sales multiple is also too rich.
It’s a solid company – no doubt, but likely paying a steep price for the ANSYS (ANSS) acquisition, hoping for ambitious synergy targets, which often don’t happen. That said, its chip design simulation business is strong and with the AI buzz can get a boost – that’s why I was surprised to see only 12% revenue growth estimates. Operating margins of both companies are very high at 32% and 28% – that’s a big plus.
There’s another competitor in this space Cadence (CDNS) which is also very profitable at 30% operating margins – same problem – 50X earnings with 17% growth..and 17.6X sales!
I do want to keep this company under the radar for sure and let’s see what the next call reveals.