Trade of the Day: Autodesk (ADSK)

by Hilary Kramer | July 1, 2014 8:34 am

Trade of the Day: Autodesk (ADSK)

3D printing is absolutely fascinating and it remains a hot topic, one that I’ve explored in my GameChangers service. I find the industry to be very innovative, but at this point in its evolution, I am much more interested in the software behind the printers than the printers themselves.

If you’re not familiar, 3D printing makes a three-dimensional solid object from a digital model by laying successive materials in different shapes. This is a very different process from traditional machining techniques, which rely on drilling and cutting to remove materials. Analysts believe that 3D printing will become a game changer for manufacturers because it would allow for the simplification of assembly lines and for more parts to be manufactured at the same factory as the finished product, as opposed to being outsourced. This would greatly reduce the cost of labor while increasing efficiency.

But every razor needs a blade, and that’s especially true for the tech industry. Good hardware needs good software (and testing, too). While 3D printing can create a solid object out of almost anything, it needs the schematics first. We’ve already done well with a tech company in this space, holding Faro Technologies (FARO[1]) in GameChangers for only a few short months before locking in a 37% profit.

Today, I like a company called Autodesk (ADSK[2]), a 3D printing software publisher. While most of the Wall Street buzz around 3D printing has focused on the printers themselves, these clever machines are useless until they are fed their instructions in the proper format to replicate a given object. Computer-assisted design (CAD) has to come first in order to tell the printer what to build to user specifications.

Since ADSK is the leading publisher of CAD software, it is not surprising that this once-mature company has started growing again as it targets new markets – schools, hobbyists, entrepreneurs – beyond its traditional architectural and engineering niches. Recent earnings blew through consensus by close to 50% and beat management’s own guidance.

The latest subscription numbers show how fast the fundamentals are changing here. ADSK took just three months to get halfway to its full-year target for signing up new corporate users, which essentially puts it a quarter ahead of Wall Street models. If the sales team can build on that level of momentum, the current P/E multiple should contract even faster than analysts think – or more likely, accelerated earnings will give shares a platform to climb.

As it is, only the most bullish investors currently expect ADSK to even start translating second-stage growth into profit before fiscal 2016, so signs of an inflection before that point may actually make this stock look cheap on a fundamental basis ahead of schedule. With nearly $1 billion in deferred revenue in the pipeline, my sense is that we may see that scenario play out over the next 12 months. The bulls think the stock may be worth $68 a share, and earnings to be reported next month could be a catalyst to drive shares higher.

In the meantime, ADSK’s relative strength remains solid, and the stock is trading above its 10-, 20- and 50-day moving averages. It has consolidated between $56 and $57 over the last 10 days, and with resistance right around current prices of $56.40, a break above could signal another leg higher.

Hilary Kramer is the editor of three financial advisory services designed to help individual investors profit from her stock picking talents — Hilary Kramer’s GameChangers[3]Breakout Stocks Under $10[4] and High Octane Trader[5].

Endnotes:
  1. FARO: /stock-quotes/FARO-stock-quote/
  2. ADSK: /stock-quotes/ADSK-stock-quote/
  3. GameChangers: http://gamechangers.investorplace.com/
  4. Breakout Stocks Under $10: http://gamechangers.investorplace.com/breakoutstocks/
  5. High Octane Trader: http://gamechangers.investorplace.com/highoctanestocks/

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