© Provided by The Motley Fool Is Autodesk Stock a Buy?
The Biden administration has made an infrastructure spending bill a top priority. The final amount has yet to be determined, but hundreds of billions of dollars are set to be spent on America's roads, electric grid, manufacturing capabilities, and tech research to get it ready for a new digital era. With so much money expected to be invested over the course of the next decade, there are lots of companies poised to benefit.
If you use Revit, there is an Autodesk Community Conversation with some Revit experts coming up July 14th, 2021. In a single generation, the very nature of design tools has evolved far beyond what we expected. There are a large number of AutoCAD plugins (add-on applications) available on the application store Autodesk Exchange Apps. AutoCAD's DXF, drawing exchange format, allows importing and exporting drawing information. Vertical integration. Autodesk has also developed a few vertical programs for discipline-specific enhancements such as. In this way, there are endless options available in AutoCAD that can help to enhance a simple design. AutoCAD 2019 by Autodesk is a licensed application that is used for drafting and Computer Aided Designing purposes.
Autodesk (NASDAQ: ADSK) could be one of those beneficiaries. The computer-aided design (CAD) software company has a hand in lots of sectors of the economy, from architecture and engineering to construction and manufacturing. The stock trades for a hefty premium, but steady long-term growth and a rosy outlook make it worth a closer look.
Lapping initial pandemic lockdowns
Autodesk, best known for its AutoCAD software for architects, engineers, and construction management, ended up having a pretty good 2020. Despite temporary lockdowns on projects last spring, Autodesk's software suite is an essential tool for many design professionals. It's also on a recurring payment schedule, either through its cloud-based offering or legacy software downloaded directly to a computer. Lockdowns or not, most customers continued paying and renewing their software licenses.
As a result, fiscal 2021 (the 12 months ended January 31, 2021) revenue increased 16% to $3.79 billion, and free cash flow was essentially flat year over year at $1.35 billion. Thus, even in a challenging period marked by the pandemic and heightened uncertainty, Autodesk enjoyed a free-cash-flow margin of nearly 36%.
The new year is off to a great start as well. Fiscal 2022 first-quarter (the three months ended April 30, 2021) revenue increased 12%, and full-year guidance is calling for sales growth of 14% to 16% and free cash flow growth of 17% to 22%. Software specifically used for architecture, engineering, and construction is leading the way higher, especially as certain projects temporarily put on hold last year fire up again.
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Autodesk frequently uses its strong free-cash-flow generation to acquire other software design companies to expand its ecosystem. Most recently, it bought manufacturing product lifecycle management company Upchain for an undisclosed sum. Early in 2021, it was announced that water infrastructure design company Innovyze was being taken over for $1 billion, and AI-based urban planning software outfit Spacemaker was acquired in late 2020 for $240 million. All three of these smaller software platforms directly address parts of the proposed infrastructure bill. More than a bet on construction, Autodesk could have multiple tailwinds propelling it higher over the coming decade.
Historically, mergers and acquisitions have been a sketchy proposition. But software is a different story. Software is a highly scalable business model -- especially cloud computing-based businesses -- and bolting on complementary peers to an existing suite of services usually turns a profit very quickly for companies like Autodesk. The recent pace of purchasing has kept free cash flow in check as of late, but the company will eventually return to robust bottom-line growth as it starts to lap the price tags it recently paid.
© YCharts ADSK Revenue (TTM) ChartThere are competitors out there that could present a long-term risk. Parts of Adobe's software empire overlap with Autodesk's, as do physics simulator Ansys, manufacturing CAD company PTC, and Bentley Systems. Video game design platform Unity Software is also expanding and finding use among designers. But computer-based design is a growth industry, especially with the promise of infrastructure upgrades on the horizon. There's still plenty of room for multiple winners here, and Autodesk's expansive stable of services gives it an advantage when landing new customers and then later deepening its relationship with them.
The promise of steady sales growth and even faster profit growth means Autodesk stock trades for a premium. Shares are currently priced at 47 times trailing-12-month free cash flow and 39 times expected current year free cash flow. Don't expect any quick and massive stock market outperformance here. Nevertheless, if steady long-term growth is what you're after, this is a top-notch player in the CAD industry, one that could get a boost in the years ahead if the federal government starts spending big on construction projects. Autodesk is a great stock if you plan to buy and hold for at least a few years.
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Nicholas Rossolillo owns shares of ANSYS, Adobe Systems, Autodesk, PTC, and Unity Software Inc. The Motley Fool owns shares of and recommends Autodesk and Unity Software Inc. The Motley Fool recommends ANSYS, Adobe Systems, and PTC. The Motley Fool has a disclosure policy.
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There is a great AEC webinar tomorrow, free and also recorded for those that are unable to attend live. If you use Revit and are evaluating how to implement generative design, this is your opportunity knocking. August 10, 2021 at 10am PT / 1pm ET (1 hour) AEC COLLECTION ESSENTIALS: Generative Design Workflows Generative Design in Revit: Three workflow examples to jumpstart your practice. Exploration is key to the design process. In this webinar, we’ll demonstrate how generative design workflows... Read more →