Autodesk, Inc. (NASDAQ:ADSK) shares are up more than 40.37% this year and recently decreased -0.52% or -$0.54 to settle at $103.89. PTC Inc. (NASDAQ:PTC), on the other hand, is up 29.67% year to date as of 12/22/2017. It currently trades at $60.00 and has returned -0.76% during the past week.
Autodesk, Inc. (NASDAQ:ADSK) and PTC Inc. (NASDAQ:PTC) are the two most active stocks in the Technical & System Software industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect ADSK to grow earnings at a 26.00% annual rate over the next 5 years. Comparatively, PTC is expected to grow at a 30.55% annual rate. All else equal, PTC’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. EBITDA margin of 10.97% for PTC Inc. (PTC). ADSK’s ROI is -25.10% while PTC has a ROI of 3.00%. The interpretation is that PTC’s business generates a higher return on investment than ADSK’s.
If there’s one thing investors care more about than earnings, it’s cash flow. ADSK’s free cash flow (“FCF”) per share for the trailing twelve months was -0.29. Comparatively, PTC’s free cash flow per share was +0.23. On a percent-of-sales basis, ADSK’s free cash flow was -3.15% while PTC converted 2.3% of its revenues into cash flow. This means that, for a given level of sales, PTC is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. ADSK has a current ratio of 1.10 compared to 1.00 for PTC. This means that ADSK can more easily cover its most immediate liabilities over the next twelve months. ADSK’s debt-to-equity ratio is 14.78 versus a D/E of 0.80 for PTC. ADSK is therefore the more solvent of the two companies, and has lower financial risk.
ADSK trades at a forward P/E of 84.88, a P/B of 212.02, and a P/S of 11.61, compared to a forward P/E of 30.60, a P/B of 7.83, and a P/S of 5.99 for PTC. ADSK is the expensive of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. ADSK is currently priced at a -21.3% to its one-year price target of 132.00. Comparatively, PTC is -10.63% relative to its price target of 67.14. This suggests that ADSK is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.00 for ADSK and 2.10 for PTC, which implies that analysts are more bullish on the outlook for PTC.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. ADSK has a beta of 1.91 and PTC’s beta is 1.33. PTC’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. ADSK has a short ratio of 2.45 compared to a short interest of 4.43 for PTC. This implies that the market is currently less bearish on the outlook for ADSK.
PTC Inc. (NASDAQ:PTC) beats Autodesk, Inc. (NASDAQ:ADSK) on a total of 10 of the 14 factors compared between the two stocks. PTC higher liquidity, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, PTC is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, OKTA has better sentiment signals based on short interest.