'Synopsys technology is at the heart of innovations that are changing the way people work and play. Self-driving cars. Machines that learn. Lightning-fast communication across billions of devices in the datasphere. These breakthroughs are ushering in the era of Smart Everything―where devices are getting smarter, everything is connected, and everything must be secure.
Powering this new era of digital innovation are high-performance silicon chips and exponentially growing amounts of software content. Synopsys is at the forefront of Smart Everything with the world’s most advanced technologies for chip design, verification, IP integration, and software security and quality testing. We help our customers innovate from silicon to software so they can bring Smart Everything to life.’ Source: (https://www.synopsys.com/company.html)
Sounds good doesn't it? AI, self driving cars, sounds like I'm in the future! But it's becoming a reality as we continue to see growth in this area and companies like FB or should I say Meta are really pushing the visual world into our daily life. But to produce this type of tech we need 'chips'. Traditionally it was semi-condcutor firms who were Synopsys main source of revenue, but as technology advances, more and more companies require the use of these products. So what does Synopsys actually do??
In essence they design software which helps chip makers develop and test their products (KISS - Keep it simple, stupid!). The software is used by world leading household names such as; Adobe, BAE Systems, EA, Garmin, McDonalds, Nasa, LG, Microsoft, etc etc. This gives them an extreme edge in this sector which not many companies can compete with.
Why do I like Synopsys? Firstly, they generate turnover from virtually the whole world, 49% of revenue comes from the US, 21% from Asia Pacific, 10% from Korea, 10% from Europe and 8% from Japan. This gives them a very diversified source of income. They don't have to rely on one market to keep money coming in.
The financials are outstanding with a gross margin of 79%, a current ratio of 1.2. Debt within the company is near an all time low.
Synopsys continue their aggressive share repurchasing program, in fact they authorised a buyback scheme of $500m worth of shares back in June. This is always positive for investors.
Earnings have grown over 28% per year over the last five years and are forecast to grow nearly 15% per year going forward based on analyst consensus. I always take these with a pinch of salts analysts are notoriously conservative.
PE Ratio is currently sitting at 71 times earnings which is quite high, but as a specialist company with a unique product offering it’s hard to compare it to other software companies in the sector. $SNPS is predominately owned by institutions. 88% of the float is in fact owned by them, this shows strong conviction for the company on Wall St.
So, to sum up; we have a company here with a very specialised set of skills and IP, they have great financials and a huge database of blue chip companies who rely on their software and expertise. Yes, the stock price is high at the moment but over the long term I think this is a great investment and a company that will continue to thrive in this technological age of AI, self driving cars, VR and more.
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