Autodesk, Inc. (ADSK) provides 3D design, engineering, and entertainment software and services worldwide. The San Rafael, Calif.-based company offers AutoCAD Civil 3D, BIM 360, AutoCAD, AutoCAD LT, and computer-aided manufacturing software. In comparison, Adobe Inc. (ADBE) in San Jose, Calif., operates as a diversified software company worldwide. It operates through three segments: Digital Media; Digital Experience; and Publishing and Advertising.
With an increasing focus on digitization, process automation, and data analytics to gain more business insights and operational efficiency, the demand for software solutions has grown tremendously. In addition, the shift to cloud computing and software-as-a-service has been helping the software industry generate relentless growth. According to Grand View Research, the global business software and services market is expected to grow at an 11.3% CAGR through 2028. Therefore, both ADSK and ADBE should benefit.
ADBE stock has gained 9.8% in price over the past month, while ADSK has delivered 7.7% returns. However, ADSK’s 0.5% gains over the past three months compare with ADBE’s negative returns.
But which of these two stocks is a better buy now? Let’s find out.
Latest Developments
On March 30, 2022, ADSK announced that it had acquired The Wild, a cloud-connected, extended reality platform, including its namesake solutions, The Wild, and IrisVR. Andrew Anagnost, the CEO and president of ADSK, said, "XR is a must-have business imperative for today and an important part of Autodesk's Forge platform vision."
On March 22, 2022, Dan Durn, executive vice president and CFO of ADBE, said, "Our momentum, product innovation and immense market opportunity position us for success in 2022 and beyond."
Recent Financial Results
ADSK’s revenue increased 18% year-over-year to $1.17 billion for its fiscal first quarter, ended April 30, 2022. The company’s non-GAAP operating income came in at $397 million, representing a 41.8% year-over-year increase. Also, its non-GAAP EPS was $1.43, up 38.8% year-over-year.
ADBE’s revenues have increased 9.1% year-over-year to $4.26 billion for its fiscal first quarter, ended March 4, 2022. The company’s non-GAAP operating income was $1.99 billion, representing a 9% year-over-year increase. Also, its non-GAAP EPS came in at $3.37, up 7.3% year-over-year.
Past and Expected Financial Performance
ADSK’s EBITDA and total assets have grown at CAGRs of 69% and 19.8%, respectively, over the past three years. And analysts expect ADSK’s revenue to increase 14.3% in the current year and 14.6% next year. The company’s EPS is expected to grow 29.2% in the current year and 20.9% next year. Furthermore, its EPS is expected to grow 25.9% per annum over the next five years.
In comparison, ADBE’s EBITDA and total assets have grown at CAGRs of 25.6% and 10%, respectively, over the past three years. The company’s revenue is expected to increase 13.1% in the current year and 14.6% next year. Its EPS is expected to grow 9.5% in the current year, 17.9% next year, and at 14.3% per annum over the next five years.
Profitability
ADBE’s trailing-12-month revenue is 3.53 times what ADSK generates. However, ADSK is more profitable, with a 91.55% gross profit margin, compared to ADBE’s 80.89%.
Furthermore, ADSK’s 53.83% ROE is higher than ADBE’s 35.34%.
Valuation
In terms of trailing-12-month EV/S, ADBE is currently trading at 11.36x, which is 22% higher than ADSK’s 9.31x. However, ADSK’s 31.83x trailing-12-month non-GAAP P/E ratio is higher than ADBE’s 31.42x.
POWR Ratings
ADSK has an overall B rating, which equates to a Buy in our proprietary POWR Ratings system. In contrast, ADBE has an overall C rating, which translates to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
ADSK has a B grade for Growth. This is justified because analysts expect its EPS to grow at 25.9% per annum over the next five years. In comparison, ADBE has a C grade for Growth, given its relatively lower EPS growth expectation.
Among 156 stocks in the Software - Application industry, ADSK is ranked #33. In comparison, ADBE is ranked #37.
Beyond what I have stated above, we have also rated the stocks for Sentiment, Quality, Value, Momentum, and Stability. Click here to view all the ADSK ratings. Also, get all the ADBE ratings here.
Click here to check out our Software Industry Report for 2022
The Winner
With the increasing adoption of advanced software in almost every industry as part of their digital transformation efforts, the industry is expected to achieve solid growth this year and beyond. And while both ADSK and ADBE are expected to gain, we think it is better to bet on ADSK now because of its higher profitability.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Software - Application industry here.
ADSK shares were trading at $208.08 per share on Tuesday afternoon, down $0.52 (-0.25%). Year-to-date, ADSK has declined -26.00%, versus a -13.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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