The price action of Autodesk (NASDAQ:ADSK) tells two different stories, depending on how you choose to look at it. To a momentum trader, ADSK stock is unstoppable after gaining more than 300% since the beginning of 2016.
That’s certainly a powerful multi-year move and it would be imprudent to short-sell ADSK stock. On the other hand, not choosing to bet against a stock doesn’t necessarily mean that you need to buy it at the current valuation.
Cautious traders can choose to wait for a more favorable entry point. Autodesk is a software company that’s thrived during the pandemic because of the work-at-home trend.
But with the ADSK stock price at all-time highs, a pullback is warranted and would actually present a compelling opportunity.
Ready-Made for the Digital Age
The ADSK stock price tumbled in late February and early March with the rest of the stock market. This demonstrates that even a good company like Autodesk isn’t immune to market-wide panics.
However, the stock’s recovery was so swift and sharp that you might call it parabolic. This occurred partly because businesses are reopening, which caused the markets to bounce back generally. The tech-focused Nasdaq in particular experienced a fast move to the upside starting in April.
And with many businesses forced to adopt a more digitized business model, software developer Autodesk was the right company at the right time. The demand for computer-aided design software, which Autodesk provides, wasn’t materially negatively impacted.
Moreover, the company had already developed its reputation as a leader in digital-design software for engineering, architecture and manufacturing. Much of the company’s revenue is derived from license renewals. And, even during a pandemic, companies aren’t usually willing to forgo the software that Autodesk provides.
In addition, Autodesk was ready-made for the work-at-home culture as the company was already in the process of migrating its customers to the cloud. As the pandemic forced team members to collaborate remotely, cloud-based tools became a staple and Autodesk was ahead of the curve in this regard.
Expectations Run High
There’s no denying that Autodesk had a strong first quarter this year. The numbers are telling a story of a company that’s thriving.
Quarterly earnings (adjusted for non-recurring items) came to 85 cents per share, which beat the analyst consensus estimate of 81 cents per share. In the first quarter of the previous year, the per-share earnings were much lower at 45 cents.
Autodesk exceeded adjusted earnings-per-share expectations consistently throughout the past four quarterly reports. Therefore, it’s reasonable to expect more growth in this area during the next reported quarter. Analysts are indeed predicting this as they’re anticipating adjusted earnings per share of 98 cents for the second quarter.
The company also beat expectations when it came to first-quarter revenue, which totaled $885.70 million. This outpaced the analyst consensus estimate by 1.27%. It also indicated an improvement over the $735.50 million in revenue reported in the comparable quarter of the prior year.
Going forward, investors must ask themselves whether this rate of improvement is sustainable for much longer. As mentioned, the analysts expect 98 cents in adjusted earnings per share for the second quarter. Autodesk is going to have to show a marked increase in profitability in order to meet this target.
Also for the second quarter, analysts are predicting $912.6 million in sales for Autodesk. Again, the expectations are high for this company. No company can have outstanding quarterly results forever. Even great companies have to take a breather and disappoint the analysts from time to time.
The Takeaway on ADSK Stock
This is not to say that ADSK stock won’t push higher. That’s certainly a possibility and the current market environment is decidedly bullish.
Still, the share price is lofty and with expectations higher than ever for Autodesk, traders should wait for a pullback before jumping in.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, he did not hold a position in any of the aforementioned securities.