Percussion Design Systems (NASDAQ: CDNS) It jumped more than 4% higher mid-session Tuesday, following the company’s better-than-expected third-quarter report.
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The electronic design software maker earned $0.80 per share on revenue of $750.9 million. Those were annual increases of 14% and 13%, respectively. Analysts had expected earnings of $0.75 per share on revenue of $741 million.
According to MarketBeat earnings data, Cadence has a long history of outperforming both the higher and lower views.
The stock cleared a six-week cup-shaped base on Monday, breaking a buying point above $168.61, reached on Sept 10. However, shares fell on Monday, before the earnings report, closing at $167.37, an increase of $0.61 or 0.37%.
Shares jumped out of the gate on Tuesday morning, rose 1.42% at the open, and then moved gradually higher.
For the fourth quarter, Cadence expects total revenue in the range of $745 million to $765 million. Net income per diluted share is expected to range from $0.76 to $0.80.
For the full year, the company expects total revenue in the range of $2.96 billion to $2.98 billion. It expects net income per diluted share to be in the range of $3.24 to $3.28.
Analysts had expected earnings of $0.74 per share on revenue of $747 million in the fourth quarter. For the full year, Wall Street pegged earnings at $3.18 per share, which would be a 14% increase. Next year, analysts expect earnings of $3.51 per share, an increase of 10%.
However, if the company’s guidance holds true, it could lead to an annual decline in revenue and profits for the current quarter.
Is this something to be worried about? Already the pace of earnings and revenue growth has been declining. Earnings growth slowed from 54% three quarters ago to the last 14%. On the revenue front, growth slowed from 37% three quarters ago to 13%.
High Demand Systems Specialist
It is important to note the company’s meticulous line of business: Cadence products are integral components in circuit board design, system-on-chip technologies and integrated circuits. In other words, the types of systems and products that are in great demand at the moment.
Tuesday’s price action, which was accompanied by a heavier-than-normal trading volume, is actually an indication that institutional investors have a conviction in stocks and are buying the stocks.
In the earnings conference call, CEO Lip Bo Tan acknowledged the trends driving the company’s growth.
“The data-driven era is fueled by generational trends such as 5G, supercomputing, autonomous driving and the Industrial Internet of Things that are accelerating the digital transformation of many industries. This requires continuous innovation in key areas such as computing, communication, storage, and data analytics, which in turn drive the growth of secular semiconductors and design activity across a wide range of end markets.”
In July, the company announced that Tan would move to CEO on December 15, with current company president Anirud Devgn taking over as president and CEO at that time.
On the conference call, analyst Jason Celino of KeyBanc Capital Markets asked about automakers, such as Hyundai and Volkswagen, that said they plan to design some of their own semiconductors, given supply chain bottlenecks.
Tan said the company is carefully monitoring the global semiconductor supply chain.
“So far we don’t see any slowdown in our design activity across our customer base. And then as you know, our product is very focused on R&D engineering and chip system design,” he said, adding that cadence takes a multi-year approach, rather than just looking at the short term .
potential in the automotive industry
In terms of specific developments in the auto industry, Tan said the company sees a great deal of design activity in autonomous driving.
“We are clearly excited about the automotive platform that will create opportunities in the next several years,” he added.
Looking to the future, is tempo a buy?
Certainly, institutional investors do not appear to be falling behind due to slowing earnings and sales growth, or even the possibility of an annual decline in the current quarter. This is encouraging for individual investors who want to ride the tail of the pros.
The stock is currently in a buying range after Monday’s breakout, but it’s not wise to chase the breakout once it advances more than 5% from the buy point. This is because even a regular and small pullback can rock you out of stocks that might have the potential to go higher.