Autodesk, Inc. (ADSK) and PTC Inc. (PTC) are two prominent players in the software application industry. ADSK is a design software and services company that offers productive business solutions through technology products, and services focused on architecture, engineering, and construction (AEC), AutoCAD and AutoCAD LT, manufacturing (MFG), and media and entertainment (M&E) industries. On the other hand, PTC is a software and services company, which offers a portfolio of computer-aided design (CAD), product lifecycle management (PLM), application lifecycle management (ALM), and service lifecycle management (SLM) solutions that enable manufacturers to

The resurgence of COVID-19 cases owing to the discovery of a highly transmissible omicron variant is making companies and enterprises adopt the remote working structures once again. Moreover, the rising corporate investments and continued demand for efficient analysis should drive the software industry’s prospects. The global software market is expected to grow at a 7.2% CAGR and reach $823.71 billion by 2026. The investor optimism in the software industry is evident from the SPDR S&P Software & Services ETF’s (XSW) 5.3% returns year-to-date. So, both PTC and ADSK are expected to benefit.

While ADSK lost 16% over the past month, PTC has surged 0.9%. PTC is a clear winner with 1.9% gains versus ADSK’s negative returns in terms of its past year’s performance. But which of these stocks is a better pick now? Let us find out.

Latest Developments

On December 16, 2021, ADSK announced its decision to acquire ProEst, a cloud-based estimating solution that enables construction teams to create estimates, perform digital takeoffs, generate detailed reports and proposals, and manage bid-day processes. The acquisition will strengthen ADSK’s Autodesk Construction Cloud’s preconstruction offerings and empower construction teams to manage their critical preconstruction and construction workflows on one platform.

On October 28, 2021, PTC announced the immediate availability of the new ThingWorx Digital Performance Management Solution (DPM). This first-of-its-kind offering represents a significant advancement in manufacturing companies’ ability to drive efficiency. DPM provides performance insights, enables real-time, closed-loop problem solving, and supports investment accountability by validating outcomes for transformational investments with real-time production data and easy-to-calculate financial improvements. This software marks a new phase in PTC’s IIoT growth strategy in enterprise solutions.

Recent Financial Results

ADSK’s total net revenues for its fiscal third quarter ended October 31, 2021, increased 18.2% year-over-year to $1.13 billion. The company’s gross profit came in at $1.02 billion, representing a 17.3% rise from the prior-year period. Its non-GAAP income from operations came in at $365 million, up 27.1% from the prior-year period. ADSK’s net income came in at $136.70 million, indicating a 3.4% year-over-year improvement. Its non-GAAP EPS increased 27.9% year-over-year to $1.33. The company had $1.75 billion in cash and cash equivalents as of October 31, 2021.

For its fiscal fourth quarter, ended September 30, 2021, PTC’s total revenue increased 22.9% year-over-year to $480.66 million. The company’s non-GAAP gross profit came in at $394.26 million, up 24% from the prior-year period. Its non-GAAP operating income came in at $176.14 million, indicating a 42.4% rise from the year-ago period. PTC’s non-GAAP net income came in at $130.57 million for the quarter, representing a 42.2% year-over-year improvement. Its non-GAAP EPS increased 41% year-over-year to $1.10. The company had $326.53 million in cash and equivalents as of September 30, 2021.

Past and Expected Financial Performance

ADSK’s total assets and levered free cash flow have grown at CAGRs of 31.2% and 59.6%, respectively, over the past three years. The company’s revenue has grown at a 20.9% CAGR over the past three years.

Analysts expect ADSK’s EPS to rise 24% year-over-year in the current year and 36.1% next year. Its revenue is expected to grow 15.3% year-over-year in the current year and 17.4% next year. The stock’s EPS is expected to increase at a 28.8% rate per annum over the next five years.

In comparison, PTC’s total assets and levered free cash flow have increased at CAGRs of 24.6% and 26.6%, respectively, over the past three years. The company’s revenue has grown at a CAGR of 13.3% over the past three years.

PTC’s EPS is expected to rise 10.3% year-over-year in the current year and 15.5% next year. The stock’s revenue is expected to increase 7.4% year-over-year in the current year and 10.1% next year. Analysts expect the company’s EPS to grow at a rate of 16.5% per annum over the next five years.

Valuation

In terms of forward EV/Sales, ADSK is currently trading at 14.27x, which is 79% higher than PTC’s 7.97x. In terms of forward EV/EBITDA, PTC’s 20.79x compares with ADSK’s 41.93x.

Profitability

ADSK’s trailing-12-month revenue is almost 2.3 times PTC’s. However, PTC is more profitable, with a 25% EBITDA margin versus ADSK’s 18.7%.

Furthermore, PTC’s return on assets (ROA) of 6.3% compares favorably with ADSK’s 6%.

POWR Ratings

While PTC has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, ADSK has an overall C grade, equating to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.  

PTC has a B grade for Growth, consistent with its impressive growth over the past year. PTC’s operating cash flow growth increased 57.7% over the past year. However, ADSK’s D grade for Growth is in sync with its negative operating cash flow growth over the past year.

Of the 168 stocks in the Software – Application industry, PTC is ranked #20, while ADSK is ranked #45.

Beyond what we have stated above, our POWR Ratings system has also rated PTC and ADSK for Stability, Quality, Sentiment, and Momentum. Get all PTC ratings here. Also, click here to see the additional POWR Ratings for ADSK.

The Winner

Growing demand for software products and solutions to help customers and businesses deliver insightful analytics should enable both PTC and ADSK to grow substantially in the upcoming months. However, relatively lower valuations and higher profit margins make PTC a better buy here.

Our research shows that the odds of success increase if one bet on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Software – Application industry.

ADSK shares were trading at $276.18 per share on Monday afternoon, down $1.47 (-0.53%). Year-to-date, ADSK has declined -9.55%, versus a 22.66% rise in the benchmark S&P 500 index during the same period.

About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...

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