Autodesk (ADSK) has dipped 13% since the start of the new year. The stock market has struggled of late, declining as a whole, yet tech stocks such as ADSK have been hit particularly hard.

If you have been patiently waiting on the sidelines, hoping and praying that ADSK declines, now is the opportunity to strike. However, some investors are not exactly uber-bullish on ADSK, primarily because it might still be overpriced despite its recent pullback.

Let’s take a look at whether now is the best possible time to add ADSK to your portfolio or if the better strategy might be to wait until the market settles down and ADSK moves to an even more attractive entry point.

The Case for ADSK

ADSK makes software for clients in the digital media, construction, engineering, architecture, manufacturing, product design, and entertainment industries. ADSK revenue is generated by selling subscriptions, cloud services, renewal fees, and enterprise business agreements. ADSK rakes in nearly $4 billion of revenue per year. It is particularly important to note that just under 97% of ADSK’s aggregate revenue stems from subscription and maintenance revenues. The remainder of the company’s revenue stems from licenses.

ADSK is currently priced around $60 below its 52-week high of $321.13. The stock currently has a forward P/E ratio of 50.80. This is a respectable P/E ratio considering ADSK is a tech stock, priced at a level that factors in earnings across years to come.

ADSK has a 15x price to sales multiple. This is a fairly high multiple, especially considering ADSK has topline growth hovering around the 15% mark. However, ADSK’s margins are improving with each earnings cycle, alleviating potential concerns regarding overvaluation.

ADSK’s fourth-quarter earnings were released this past February. Though guidance was weaker than anticipated, ADSK’s headline numbers surpassed expectations. Unfortunately, these numbers resulted in ADSK selling off. The decline was a bit surprising, considering DSK’s aggregate revenue spiked more than 15%, coming in just under $3.8 billion.

Remember that 97% of the company’s revenue stems from subscriptions, most of which auto-renew without a second thought or any additional scrutiny. Add in the fact that plenty of ADSK subscriptions are set up with multi-year contracts, and there is even more reason for ADSK investors to rest easy. Though ADSK collected billings were down 1% in the prior year, this is not as disappointing of a figure as it seems because merely collecting from customers during the pandemic was not exactly easy.

ADSK According to the Analysts

Analysts are bullish on ADSK, setting an average price target of $319.26. If ADSK were to reach this price, it would have increased by more than 18.5%. The highest analyst price target for the stock is $370. The lowest target price is $224. A total of 22 analysts have issued recommendations for the stock. Only one of these analysts has ADSK as a Strong Sell, one considers it a Sell, four consider it a Hold, nine consider it a Buy, and seven consider it a Strong Buy.

ADSK POWR Ratings

ADSK has an overall POWR Rating of B, meaning it is a Buy. ADSK has an A grade in the Quality component and a B grade in the Momentum component. If you are interested in learning more about ADSK’s grades in the remaining components of the POWR Ratings, you can find out by clicking here. The icing on the cake is the fact that ADSK is ranked in the top 10 of 60 publicly traded companies in the Software – Business industry. You can find other top stocks in the industry by clicking here.

Is This a Good Time to Buy ADSK?

Yes. ADSK is a subscription-based business, meaning it will likely continue raking in cash. ADSK’s cloud-based products, including its workflow management platform, were used nearly two times as often during the fourth quarter of 2020. Neglect ADSK’s rapid growth at your own peril. 

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ADSK shares were unchanged in after-hours trading Tuesday. Year-to-date, ADSK has declined -13.55%, versus a 3.55% rise in the benchmark S&P 500 index during the same period.

About the Author: Patrick Ryan

Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management. More...

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