Is Autodesk a long term stock?


Renowned venture capitalist Marc Andreessen once said that “software eats the world” in 2011. Over the past decade, it has proven itself time and time again, as software and technology have made their way into every part of the world. our life. But how can investors get on the software train? One way could be to invest in an industry giant Autodesk (NASDAQ: ADSK), which sells dozens of different software tools to engineers, architects and construction workers.

Is Autodesk a long term stock? We will take a look.

Image source: Getty Images.

What is Autodesk?

Autodesk sells software to the people who make things. This includes individuals and businesses in the fields of architecture, engineering and construction (AEC), manufacturing, utilities, infrastructure and entertainment. The majority of its activity comes from the AEC market, especially with design tools. In the last quarter (its fiscal first quarter of 2022), 73.6% of its overall sales came from these products. Within AEC, Autodesk’s most popular programs are Revit, which helps people design and manage buildings, and the general-purpose computer-aided design platform AutoCAD.

Outside of design, the company offers products for construction management through its Autodesk Construction Cloud, manufacturing with Inventor and Fusion 360, infrastructure and civil engineering with Civil 3D and Innovyze, and supports with products like Maya and Arnold. At this point, Autodesk has become a bit of a conglomerate, with its toes in many different markets.

Much work in his favor

Core design products are expected to generate consistent profits for Autodesk, but the company has other initiatives and business trends that should help it grow its business over the next decade. First, in manufacturing and mechanical engineering, Fusion 360 is growing like a weed and looking to disrupt the market with a cloud-based platform approach. It is also inferior to most of Autodesk’s competitors by offering a low annual price of $ 500 per year (most other products in this category cost at least a few thousand dollars). At the end of the quarter, the service had 152,000 paying subscribers. Investors should expect this number to increase dramatically over the next several years.

In construction, Autodesk now offers many products in its construction cloud to help it move from design to the actual construction process. Autodesk Build is its flagship product that helps workers communicate and manage jobsites more effectively. The construction industry has been slow to embrace digital technology and products, leaving a huge opportunity for Autodesk if / when that changes over the next decade.

Economic and political trends are expected to have a positive impact on Autodesk’s business. The infrastructure bill in the United States, which currently allocates $ 715 billion to help improve transportation and water management (among other things), is expected to drive demand for many Autodesk products. Outside of the United States, other countries are offering fiscal stimulus. At a recent investor conference, an Autodesk executive estimated that 23% of all proposed stimulus spending can be attributed to industries served by the company.

So, is the action a buy?

Autodesk has a market cap of $ 64 billion and is targeting around $ 1.6 billion in free cash flow this year. This gives it a forward price-to-free cash flow (P / FCF) ratio of 40. It’s expensive compared to the Nasdaq index, which has an average P / FCF of less than 30. However, Autodesk believes that it can reach $ 2.4 billion in annual free cash flow by fiscal 2023 (calendar year 2022), which would bring its P / FCF down to 27, very close to the market average.

If you believe in the potential of Fusion 360, Autodesk Construction Cloud, and the tailwind of government stimulus packages around the world, Autodesk could generate well over $ 2.4 billion in free cash flow in five and 10 years. With all of these factors taken into account, even with the high current P / FCF multiple, Autodesk looks like stock for the long haul.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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