Dassault Systemes: Short-Term Buying Opportunity For Long-Term Growth

| About: Dassault Systemes (DASTY)

Dassault Systemes (OTCPK:DASTY) is a company that produces some of the leading CAD software in the industry. For those unfamiliar CAD is computer aided design. The software is used heavily in design, engineering, and manufacturing. More and more over time design work has gone into CAD at earlier and earlier stages of the development process. At this point only the earliest of conceptual sketches are done on paper before being translated into CAD software and refined. Once a design is in CAD, there are a number of analysis tools within the software used to refine the design to make it as strong or light or cheap as the designer wants. When a design is finalized it can be moved into CAM software (computer aided manufacturing) to create the computer controlled manufacturing parameters to actually make the part physically.

Dassault Systemes makes two very popular CAD software suites. CATIA is the company's high end offering. CATIA starts as just CAD in its most basic form but can be built up into one of the most full featured software suites in the world depending on what add-ons the user chooses including CAM and a number of analysis tools. CATIA is considered 'full featured' CAD software for this reason. CATIA's two main competitors are Creo (formerly Pro/E) from PTC (PMTC) and NX from Siemens (SI). These are the three major 'full featured' CAD solutions on the market. Getting exact prices on this software is not easy because the companies do not publish prices. That said, CATIA is thought to be the most expensive with prices ranging anywhere from $9,000 to $65,000 per license depending on the features chosen by the customer.

Dassault Systemes' other popular CAD product is Solidworks. Solidworks is considered more mid-range CAD software. The feature list is not nearly as long, primarily there is no CAM. This does however make the software much more affordable with prices ranging from $4,000 to $33,000. This makes it much more attainable for small to medium size businesses.

This software is extremely powerful and important to the product design, development, manufacturing, and even marketing processes, justifying its high price. The trend of it getting integrated earlier and more thoroughly in the process is sure to continue as a generation of engineers comes into industry never having designed on paper at all.

Right now Dassault Systemes is cheap due to a significant fall in the stock price following a slightly weak 3rd quarter earnings release. The stock has fallen from the $130-135 range down to the current price of $115 as of writing. The miss in third quarter earnings was due in large part to a higher portion of their customers choosing to rent the software as opposed to buying it upfront. Though this trend does hurt their earnings in the short term, I believe it will not be damaging in the long term. This shift in customers wanting to pay per time period instead of up front strongly correlates to the shift towards cloud computing. Dassault Systemes is leading the CAD industry into cloud computing with their 3DExperience platform. As their cloud based software becomes more full featured and powerful it will suit the needs of their customers who are opting more and more to rent the software. Dassault will charge more for the cloud based software than the current rental system because they will also be providing customers with the infrastructure to support it according to their earnings call.

Dassault has been a solid performer in the past and despite the recent downturn I believe they will continue to be a strong performer in the future. They offer high end software used in an enormous number of industries all being pushed towards heavier use of computer design and automation. So while the customer shift towards rental hurts the earnings numbers in the short term I believe it validates the company's long term strategy shift towards the cloud.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in OTCPK:DASTY over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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