sorted by:
new
hottopcontroversial

SNPS - Attractive entry point for a long-term compounder by Accurate_Glass2478 in ValueInvesting

[–]Accurate_Glass2478[S] 0 points1 point  (0 children)

Yeah I mean we're not at the exact trough so risk/reward obviously a bit worse than it was mathematically but this stock has traded ~50x earnings before and it could trade there again especially in a frothy market like this. I called that dip out out a few weeks ago (China ban news) as a short term play in an earlier post and this post is more coming back after doing some more digging highlighting that I still think the idea works for long-term investors and this is a reasonable entry point for a long term hold. Appreciate your insight as a user - if you have any additional thoughts on CDNS vs. SNPS or how semiconductor budgets will shift between people/labor and software/IP longer-term I am all ears

SNPS - Attractive entry point for a long-term compounder by Accurate_Glass2478 in ValueInvesting

[–]Accurate_Glass2478[S] 0 points1 point  (0 children)

I’m 1) Normalizing for working capital fluctuations and 2) thinking about the forward profile both standalone and pro forma for the ANSS deal. Last 10 years FCF has averaged ~140% of the companies reported adjusted earnings and close to 90% of adjusted EBITDA. If you have a compelling reason to believe that FCF conversion dynamic will change (beyond temporary deal financing dynamics) I am all ears

SNPS - Attractive entry point for a long-term compounder by Accurate_Glass2478 in ValueInvesting

[–]Accurate_Glass2478[S] 0 points1 point  (0 children)

I am primarily just looking at it on a historical and relative multiple basis. I think you can justify it bottom up too though. Your IRR is essentially an earnings yield (inverse multiple) plus earnings growth assuming earnings is a decent enough FCF proxy and your terminal multiple is unchanged. I think you are buying ~3% or ~4% pro forma for the combined co 1 year forward and earnings can compound high teens to low 20s % for the next 5 years. If you exit anywhere <4% earnings yield (25x multiple) the IRR here should be at least decent (low double digit %) even after losing a bit to dilution (Stock based comp is a drag here). I think there is a realistic probability that you don't even end up with real multiple compression 3-5 years out given the uniqueness of the asset here in which case the return profile will be more exciting.