I have heard multiple times that once an EDA company goes public almost always the new investors do not experience the growth in the share price that other companies in the electronics industry can offer. At least this is what one hears from publicly traded EDA companies. I wanted to see how true the opinion is. I looked at the last twelve months stock market performance of Cadence, Mentor, and Synopsys and compared it to a few other electronics companies’ market performance.
The EDA Companies
On October 23rd Cadence reported third quarter 2013 revenue of $367 million, compared to revenue of $339 million reported for the same period in 2012. For the last complete financial year Cadence reported revenues of $1.33 billion, an increase of 15% over 2011 results. During the last twelve months its stock price ranged from $13.51 to $12.71 reaching a peak price of $15.77 on July 19th. The company today has a little over 287 million shares outstanding and a EPS (earning per share) of 1.53. it is interesting to note that almost all the publicly traded shares are owned by institutional investors.
Mentor will release its 3rd quarter 2014 soon. For the first six months of its 2014 fiscal year Mentor reported revenue of almost $480 million. Its last completed year of operation resulted in revenue of $1.089 billion. Its latest EPS is 0.95. In the last twelve months he stock reached a highest closing price of $23.62 on October 1st and the lowest price of $14.22 on November 19, 2012. The company is in currently executing a share buyback program and plans to purchase up to $20 million worth of shares. Also in the Mentor case almost all of the outstanding stock is in the hands of institutional investors. It is interesting to note that of the three companies I looked at, only Mentor is currently paying a dividend to its investors. The quarterly dividend is $0.05 per share.
For the third quarter of fiscal year 2013, Synopsys reported revenue of $482.9 million, compared to $443.7 million for the third quarter of fiscal year 2012, an increase of 8.8%. The company reported revenue for the last complete fiscal year of $1.756 billion. Revenue for the quarter ended July 31, 2013 were almost $483 million. Stock price ranged from a low of 31.42 on January 7th to a high of $38.40 on October 22nd. Its EPS is 1.41. Of the three EDA companies Synopsys is the company with the largest percentage of shares in the hands of small investors.
Other Electronics Companies
For comparison I picked ARM that considers itself an IP company, Applied Materials a provider of semiconductors fabrication equipment, and TSMC, a foundry.
ARM is the largest pure play IP company. For its 3rd quarter 2013 it reported revenue of $286.7 million. For its 2012 fiscal year it reported revenue of $650 million. ARM pays dividends to its stockholders, a practice very popular with European companies. At the beginning of September it increased the amount of its dividend from $0.12 to $0.167 per share. Its stock price ranged from a low of $34.46 on November 20, 2012 to a high of $51.78 on October 21st. Its EPS is 0.53 and only about 28% of its shares are held by institutional investors, making the stock more volatile due to a higher volume of daily trades by small investors.
Applied Materials stock price ranged from a low of $10.36 on November 19, 2012 to a high of $18.07 on October 22. The company has just reported its fiscal 2013 results. It had revenue of $8.719 billion and it pays a $0.10 quarterly dividend. The EPS is a negative 0.36 and the stock is approximately 86% owned by institutional investors.
Finally TSMC’s stock ranged from a low of $15.75 on August 21st to a high of $20.21 on May 8th. Its EPS is 1.19. For fiscal 2012 the company reported revenue of over $17.2 billion. For the 3rd quarter of 2013 revenue were a little over $5.5 billion. The company is in a competitive market that also requires very high capital expenditures to stay competitive.
few data points show that there is really no substantial difference in the performance of the stock of an EDA company versus that of other companies in the electronics industry. Certainly both Applied Materials and TSMC have much larger revenue, but their business model is quite different from that of EDA vendors. Revenue size is not a good indicator of stock performance anyway. Profits are, as well as expected performance in the short term (one or tow years). Stock market behavior no longer reflects long term expectations as investors are focused on immediate returns. Actually judging by earnings per shares, EDA companies are above average in the ability to generate revenue from their capitalization. The fact that institutional investors own a very large percentage of stocks of EDA companies shows that they are seen as reliable conservative investments. In the last twelve months Mentor stock in fact performed as a growth stock. If you had purchased it at its low price of $14.22 and sold at $23.62 you would have realized a 66% return on your investment. Only a similar investment in Applied Materials would have returned a higher percentage.