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Autodesk: With A Cautious Outlook, The Stock Shouldn't Be At All-Time Highs

Jun. 01, 2020 3:39 PM ETAutodesk, Inc. (ADSK)3 Comments
Gary Alexander profile picture
Gary Alexander


  • Autodesk's heavy exposure to the manufacturing and construction industries makes it one of the most heavily-impacted software companies to the coronavirus pandemic.
  • The company has called for billings to be negative in FY21, starting with Q2. In particular, Autodesk's key multi-year contracts are at risk.
  • Shares look expensive at ~10x forward revenue and ~30x forward FCF.
  • There's no doubt that Autodesk remains a key technology, but investors will be able to get in at a better price later.

It's almost unfathomable to believe that Autodesk (NASDAQ:ADSK), the maker of computer-aided design (CAD) software that is popularly used among engineers across the globe, is back to trading at all-time highs. Shares have rocketed up more than 60% from their nadir reached in March, when investors were rightfully worried about the impacts of construction and manufacturing on Autodesk's end-customer demand.

The company recently released first-quarter earnings results that more or less confirmed these concerns. Though Autodesk still remains optimistic on the value proposition and criticality of its product (this was never in doubt; Autodesk remains the world's premier CAD software), its prognostications for the remainder of the fiscal year don't show any clear path to a normalization in its business.

Investors, on the other hand, have treated Autodesk's recovery as a foregone conclusion. Shares have risen nearly 10% after the company reported Q1 results alone (which, when taking management's commentary about FY21 into consideration, weren't really that great) and are back at all-time highs.

My prior article on Autodesk focused on the company's overweight exposure to cyclical industries, with about two-thirds of its revenue coming from the manufacturing and construction verticals. Now that we've seen Autodesk's Q1 results and updated guidance, we can more clearly flesh out what the remainder of the year looks like for Autodesk.

My overall view remains unchanged: though many enterprise software companies have reported that sales trends began to normalize in April and May, the road to recovery for Autodesk remains more unclear. Looking longer-term, Autodesk is still a fantastic company. It has become the gold standard for CAD software, used both professionally and as the program for instruction at many engineering schools across the world. I do think, however, that the stock's rally since March has been indiscriminate given the serious fundamental risks facing the company this year, and investors should

This article was written by

Gary Alexander profile picture
With combined experience of covering technology companies on Wall Street and working in Silicon Valley, and serving as an outside adviser to several seed-round startups, Gary Alexander has exposure to many of the themes shaping the industry today. He has been a regular contributor on Seeking Alpha since 2017. He has been quoted in many web publications and his articles are syndicated to company pages in popular trading apps like Robinhood.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within 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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Comments (3)

ADSK has increased since the earnings report because it was a great report. You say "the road to recovery for Autodesk remains more unclear". What recovery? Business is fine.

They just reported revenue growth of 20% (a covid impacted quarter of Feb-April mind you) while concurrently expanding margins. It's not surprising that top line is strong given that only 10-15% of their business is from small businesses. Large companies are weathering covid much more easily.

Also, consider the CEO's Q1 earnings quotes regarding weekly active users:
"One of the metrics we've been tracking closely is the weekly active users of our products, and since the pandemic started usage of our products dip slightly, but overall remained relatively steady." ... "That weekly active usage, while it declined a little bit as we headed into this, is definitely starting to stabilize." This is a very global company. Remember that Asia and Europe entered and exited peak covid before the US. Autodesk is already past a dip in usage.

Further, autodesk has had zero layoffs or furloughs. This is a very bullish signal. If they saw weakness coming this would not be the case.

Long ADSK.
How long have you been following this stock? It's Adobe part II....
I sold half after earnings. I’m expecting COVID/WFH movement to be significant headwind for this company reducing demand for commercial real estate. Unless an infrastructure deal happens, I’m going to let my profits ride.
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