Cadence Design Systems (NASDAQ:CDNS) Passes Key Quality Investment Screen

The Caviar Cruise stock screening method is a structured way to find good investments. This approach looks for companies with steady revenue and profit increases, high returns on invested capital, good cash flow production, and acceptable debt amounts. Different from strict value investing, quality investing focuses on lasting competitive strengths and long-term business strength, frequently resulting in investors keeping these companies for a long time. The screen assesses both past results and future growth potential to find businesses with lasting success traits.

Financial Performance Measurements

Cadence Design Systems Inc (NASDAQ:CDNS) shows very good financial traits that match quality investment standards well. The company’s five-year revenue increase of 11.65% is above the screen’s 5% minimum requirement, showing steady business growth. More importantly, Cadence’s EBIT increase of 22.65% over the same time is much higher than its revenue increase, pointing to better operational effectiveness and possible pricing strength. This EBIT growth advantage is especially significant for quality investors because it shows the company is growing more profitable as it gets larger, possibly due to scale benefits or market strengths.

The company’s financial stability goes further than growth measures to include profitability and capital use. Cadence reaches a very high return on invested capital (excluding cash, goodwill, and intangibles) of 62.26%, much higher than the 15% minimum. This excellent ROIC shows the company’s capacity to produce large returns from its invested capital, a key part of quality investing that points to effective capital use and solid market position.

Financial Stability and Cash Flow

Cadence shows very good financial control with a debt-to-free-cash-flow ratio of 1.56, under the screen’s 5.0 maximum limit. This careful debt situation means the company could pay off all its debt in under two years using present cash flow levels, giving important financial flexibility and lowering risk during economic slowdowns. The company’s profit quality measure, averaging 128.61% over five years, shows that Cadence turns more than 100% of its accounting profits into real cash flow, indicating strong earnings reliability and effective working capital handling.

The company’s balance sheet strength is further shown by current and quick ratios of 2.82 and 2.67, both much higher than industry norms. This liquidity situation makes sure Cadence can easily meet immediate responsibilities while supporting current operations and strategic plans without needing outside funding.

Fundamental Review Summary

According to the detailed fundamental review, Cadence gets a total rating of 6 out of 10, with especially good grades in profitability (9/10) and growth (8/10). The review points out several main strong points:

• Very good profit margins higher than industry competitors
• Good historical revenue and earnings increases
• Positive analyst predictions for future growth
• Better returns on assets, equity, and invested capital

While the valuation grade of 3/10 shows high pricing compared to market averages, this is typical for quality companies with good growth outlooks and market strengths. The financial stability grade of 6/10 indicates small issues but general steadiness.

Industry Standing and Market Strengths

Cadence works in the electronic design automation industry, supplying important software and intellectual property for semiconductor design. The company gains from several quality investment traits, including high customer changing expenses, repeating revenue streams, and involvement in long-term technology directions like artificial intelligence, cloud computing, and automotive electronics. Its worldwide presence and necessary function in the semiconductor environment provide natural variety and downturn endurance.

The company’s intellectual property collection and settled customer connections make important obstacles for new entrants, supporting its capacity to keep high pricing and good gross margins of 85.57%. These market strengths fit with the quality investing idea of looking for businesses with lasting advantages that can maintain profitability through economic changes.

Investment Points

While Cadence fits most quality investment standards very well, possible investors should think about the stock’s high valuation relative to present market situations. The company’s price-to-earnings ratio of 54.35 shows high growth expectations, needing continued performance to support current pricing. However, quality investors often accept higher valuations for businesses showing steady results, good competitive positions, and predictable growth paths.

The Caviar Cruise method has found Cadence meets its strict quality requirements through numerical screening. Investors wanting to see other companies that pass this quality screen can view the full Caviar Cruise screening outcomes for more investment options.

Disclaimer: This review is for information only and does not form investment advice. Investors should do their own research and talk to financial advisors before making investment choices. Past results do not ensure future outcomes.