If we could judge Autodesk (NASDAQ:ADSK) purely on its technological prowess, ADSK stock would simply be a no-brainer. Specializing in software services for the engineering, architectural, construction and manufacturing industries, the company provides the platform to take concepts to the production phase. As such, Autodesk stock is levered to exciting innovations such as additive manufacturing.
Not surprisingly, Wall Street has positive sentiment toward the tech firm. On a year-to-date basis, ADSK stock is up over 29%. Not only that, shares have moved higher ahead of the ADSK earnings report for the third quarter of fiscal 2020. Scheduled for release on Tuesday, Nov. 26 after the closing bell, expectations are high relative to the year-ago quarter’s results.
For earnings per share, consensus among covering analysts sits at 73 cents. This is near the lower end of estimates, which ranges from 71 cents to 76 cents. However, if Autodesk meets the target, it would represent a whopping 152% increase. In Q3 of fiscal 2019, the company delivered EPS of 29 cents versus a 27-cent consensus estimate.
On the revenue front for Autodesk stock, analysts are targeting $825.7 million. Here, estimates range from $821.3 million to $830 million. In the year-ago quarter, Autodesk reported top-line sales of nearly $661 million. Thus, if the company meets expectations, we’re looking at a 25% lift year-over-year (YOY).
Although much pressure is riding on the ADSK earnings, enthusiasm is high. One of the reasons for ADSK stock moving higher this year is due to strong performances in the top line. Over the trailing four quarters, YOY sales growth averages nearly 31%.
Still, some caution is warranted before diving in too deeply with Autodesk stock.
Multiple Variables May Impact ADSK Stock
There’s no question that the longer-term potential for Autodesk stock is incredibly compelling. Best known for its AutoCAD software, Autodesk could be described as a “dream maker.” Essentially, they’re experts at transforming concepts into reality.
Furthermore, ADSK stock isn’t just a construction-related investment, although that’s where the association is deepest. Because the tech firm is at heart a software engineer, it touches virtually all aspects of digitalization. For instance, Autodesk has strong implications for the media and entertainment industries.
Considering that, for the most part, the only kind of movies that consistently bring people to the cineplex are big-budget Hollywood blockbusters, Autodesk will be in high demand. That’s a huge plus for ADSK stock.
However, the costs for Autodesk’s clients to bring their concepts to production are not cheap. And while these clients may utilize additive manufacturing to help bring down costs, this process also isn’t inexpensive. In fact, one of the key disadvantages to additive manufacturing is the initial onerous investment required.
Further, prior to the surge in the additive industry, experts have analyzed the associated costs and benefits. What they found was that irrespective of additive manufacturing’s efficiencies, material costs still impose a significant cloud over a company’s or project’s budget.
Plus, I should mention that additive manufacturing is limited to what materials the process can utilize. And the composition or densities of products produced by additive manufacturing may differ from those produced by traditional methods.
In other words, the revenue channel for ADSK stock has two components: first, Autodesk must deliver on its software services and second, the client must be able to advantage that service (by having resources to convert concepts to reality).
With multiple variables involved, I’m not in a hurry to play Autodesk stock ahead of the ADSK earnings report.
Technology Versus the Investment Thesis
Again, let me stress that the technologies and innovations underlining Autodesk stock are remarkable. As I said at the earlier, if we judged shares simply on their technological prowess, it’s not a matter of if you should buy, but how much.
Unfortunately, that’s not our fork in the road. Instead, it’s whether the markets will push ADSK stock higher. For now, I see some fundamental risks.
Primarily, the global economy isn’t giving off confident signals. Furthermore, if we don’t get a substantive U.S.-China trade deal, demand for Autodesk’s services may wane.
Lastly, investors should remember the plight of 3D printing stocks. Billed as the next big thing, this sector enjoyed a brilliant debut. Later, though, they crumbled badly. The problem? Retail 3D printers were so expensive that they didn’t make practical sense.
If the economy takes a hit next year, we could see this situation scaled up to the corporate level. Thus, I’m going to wait for better signals before gambling too heavily on ADSK stock.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.