Autodesk (ADSK) is a leading tech company specializing in 3D design and other types of software. The shares of this company have seen very strong gains over the past year, trading way off the 52-week lows around $23.64. Yesterday, ADSK shares put in a new 52-week high around $44.44. The chart for ADSK looks terrific. I hate to argue with shares that seem like they can only keep going up, but I believe these shares should be sold as there are better investment choices.
Autodesk is set to release earnings on February 24, after the close. The consensus estimate is about 34 cents per share for the quarter. I won't be surprised if ADSK meets or beats these estimates. I just feel that the stock price is way ahead of itself at about $44 per share, and that the easy money has been made in these shares.
Earnings estimates for ADSK average around $1.31 for 2011 and $1.63 for 2012. Compare this to estimates for Cisco (CSCO), which are about $1.60 for 2011 and $1.77 for 2012. In both 2011 and 2012, Cisco is estimated to earn more per share than ADSK ... and yet you can buy a share of Cisco for about $18.60. If you want to buy a share of ADSK, it will cost you significantly more than double the price of Cisco shares at about $44.
ADSK shares look priced for perfection to me. If there is any miss or poor guidance going forward, or a market correction, ADSK shares could drop hard. Even if they execute well as they have recently, I don't see much upside for these shares at these lofty levels. Apparently ADSK insiders also seem to think it's a good time to sell shares. Autodesk insiders have been taking advantage of the higher share prices and have sold tens of thousands of shares in the past several months.
I also think the market is due for a correction, and shares of stocks like ADSK are not likely to hold up as well as shares of CSCO will.
Overall, ADSK is a great company with good management, but the current stock price makes little sense to me, especially when other great tech companies can be purchased for far more reasonable valuations. If I owned ADSK shares at these levels, I would sell them and buy CSCO, which gives me a stock with higher estimated earnings per share for less than half the price. Cisco has also announced that it will start paying a dividend in the coming months, which would be another advantage to rotating out of ADSK and into CSCO.
In summary, both ADSK and CSCO are great companies. However, one appears to be priced for perfection, and the other seems to be a real bargain in just about every way: PE ratio, price to sales ratio, future dividends, etc. In the short run, ADSK could keep going higher and CSCO shares could go lower. In the long run, I have no doubt that Cisco will outperform from these low levels.
Disclosure: I am long CSCO.