Cadence currently trades at $265.98 per share and has shown little upside over the past six months, posting a small loss of 2.7%.

Given the underwhelming price action, is now a good time to buy CDNS? Or should investors expect a bumpy road ahead? Find out in our full research report, it’s free.

Why Does Cadence Spark Debate?

With the name chosen to reflect the idea of a repeating pattern or rhythm in electronic design, Cadence Design Systems (NASDAQ:CDNS) offers a software-as-a-service platform for semiconductor engineering and design.

Two Things to Like:

1. Billings Growth Boosts Cash On Hand

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

Cadence’s billings punched in at $1.41 billion in Q4, and over the last four quarters, its year-on-year growth averaged 16.2%. This performance was solid, indicating robust customer demand. The cash collected from customers also enhances liquidity and provides a solid foundation for future investments and growth.

2. Customer Acquisition Costs Are Recovered in Record Time

The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.

Cadence is extremely efficient at acquiring new customers, and its CAC payback period checked in at 2.7 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give Cadence more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments.

One Reason to be Careful:

Long-Term Revenue Growth Disappoints

A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Over the last three years, Cadence grew its sales at a 15.8% annual rate. Although this growth is acceptable on an absolute basis, it fell slightly short of our standards for the software sector, which enjoys a number of secular tailwinds. Luckily, there are other things to like about Cadence.

Final Judgment

Cadence has huge potential even though it has some open questions, but at $265.98 per share (or 13.9× forward price-to-sales), is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.

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