Value
2.8/10data confidence 100%| Component | Sub-score |
|---|---|
| P/E | 1.6 |
| P/S | 0.0 |
| EV/EBITDA | 0.0 |
| Fwd P/E | 3.0 |
| PEG | 3.9 |
| Analyst target | 6.0 |
- ▸Forward P/E: 34.8x
- ▸PEG: 2.62
- ▸Expensive valuation
CDNS · Why this verdict
Why Cadence Design Systems (CDNS) is rated SELL
Updated
Model-generated analysis — not investment advice. Not a registered investment advisor. Past performance does not guarantee future results. How we score · Editorial policy
Show full disclosure ▾Hide full disclosure ▴
About TrendMatrix. TrendMatrix is a publisher of general securities research and market commentary. We publish on a regular schedule. All content is the same for every subscriber in a tier — we do not provide personalized investment advice and we do not take into account any individual subscriber's financial situation, investment objectives, risk tolerance, tax situation, or holdings.
Not investment advice. TrendMatrix is not a registered investment adviser. Our content is for informational and educational purposes only. Consult your own licensed investment adviser, broker, or tax professional before making any investment decision.
Conflicts and positions. People who build TrendMatrix, or entities they control, may hold positions, long or short, in securities it covers, and may trade them at any time. Positions are not disclosed individually. Verdicts are generated by an automated model applied by the same rules to every covered stock, and are not adjusted for any position held by the people who build TrendMatrix. We do not accept payment from issuers for coverage.
No paid promotion. TrendMatrix does not accept payment from any issuer, broker, or third party in exchange for coverage of any security.
No fiduciary duty. No fiduciary, advisory, or agency relationship is created between you and TrendMatrix by reading our content or subscribing to our service.
Performance. Past performance is not indicative of future results. Performance figures reflect the published model only and do not reflect any individual subscriber's actual results.
VerdictSELL
Overall score5.7/10
ConfidenceMEDIUM
MacroRISK_OFF
TrendMatrix Research · core thesis
Engine thesis — one sentence
A high-quality software franchise with flawless earnings execution trades at a valuation that leaves little room for disappointment; negative price momentum and a single hardware-supplier dependency are the primary near-term headwinds that, combined with unfavorable risk/reward geometry, counsel caution despite the exceptional underlying business.
Falsifiable statement — pillar-level invalidators below. Engine-derived; not personalized advice.
Thesis pillars
| Pillar | Expectation | Trend |
|---|---|---|
The company's reliance on a single supplier for certain hardware components introduces a supply-chain vulnerability that could disrupt product availability and compress margins if that supplier faces capacity, quality, or geopolitical constraints. Bear case | Annual filings disclose 2 or more qualified alternative hardware suppliers, reducing reliance on any single source to below 50% of hardware procurement. | ↓Deteriorating |
| CounterSole-source hardware relationships in design software tool chains often reflect deliberate engineering and validation choices rather than negotiating weakness; the software-centric revenue model limits the direct revenue impact of any near-term hardware component constraint. | ||
The company has beaten earnings estimates in all four of the most recent quarters, with an average positive surprise of approximately 5.5%, demonstrating a consistent pattern of delivering ahead of expectations that underpins the quality of the business. Earnings | The earnings beat streak extends to at least six consecutive quarters, with average quarterly surprise remaining above 3%. | ↓Deteriorating |
| CounterA forward multiple of 42 times earnings means the market has already priced in continued beats; any quarter where results merely meet expectations rather than exceed them could trigger a significant de-rating, making consistency a necessary condition rather than a differentiator. | ||
At a forward price-to-earnings multiple of 42 times and a PEG ratio of 3.75, the stock screens as expensive relative to nearly all peers, and the price has already exceeded its near-term resistance target, leaving only a narrow band of upside before the geometry becomes unfavorable. Valuation breakdown | Forward P/E compresses below 30 times as earnings growth accelerates or the price consolidates, restoring a more attractive entry point. | →Stable |
| CounterHigh-quality software franchises with durable cash generation — 128% free cash flow conversion relative to net income — and a wide economic moat can sustain elevated multiples for extended periods, particularly when earnings beats continue to validate the growth trajectory. | ||
Price momentum has weakened materially, with on-balance volume falling — indicating more shares are being distributed than accumulated — and the overall momentum profile falling below the level typically required for a constructive setup, suggesting institutional positioning has shifted toward the sell side. Momentum breakdown | On-balance volume turns positive and sustains an upward slope for 2 consecutive months, confirming that distribution pressure has reversed. | ↑Improving |
| CounterThe stock remains above its 200-day moving average, meaning the long-term trend is intact; the current weakness may represent a normal consolidation within an ongoing advance rather than a structural shift in institutional sentiment. | ||
The company's reliance on a single supplier for certain hardware components introduces a supply-chain vulnerability that could disrupt product availability and compress margins if that supplier faces capacity, quality, or geopolitical constraints.
↓DeterioratingBear case
- Expectation
- Annual filings disclose 2 or more qualified alternative hardware suppliers, reducing reliance on any single source to below 50% of hardware procurement.
CounterSole-source hardware relationships in design software tool chains often reflect deliberate engineering and validation choices rather than negotiating weakness; the software-centric revenue model limits the direct revenue impact of any near-term hardware component constraint.
The company has beaten earnings estimates in all four of the most recent quarters, with an average positive surprise of approximately 5.5%, demonstrating a consistent pattern of delivering ahead of expectations that underpins the quality of the business.
↓DeterioratingEarnings
- Expectation
- The earnings beat streak extends to at least six consecutive quarters, with average quarterly surprise remaining above 3%.
CounterA forward multiple of 42 times earnings means the market has already priced in continued beats; any quarter where results merely meet expectations rather than exceed them could trigger a significant de-rating, making consistency a necessary condition rather than a differentiator.
At a forward price-to-earnings multiple of 42 times and a PEG ratio of 3.75, the stock screens as expensive relative to nearly all peers, and the price has already exceeded its near-term resistance target, leaving only a narrow band of upside before the geometry becomes unfavorable.
→StableValuation breakdown
- Expectation
- Forward P/E compresses below 30 times as earnings growth accelerates or the price consolidates, restoring a more attractive entry point.
CounterHigh-quality software franchises with durable cash generation — 128% free cash flow conversion relative to net income — and a wide economic moat can sustain elevated multiples for extended periods, particularly when earnings beats continue to validate the growth trajectory.
Price momentum has weakened materially, with on-balance volume falling — indicating more shares are being distributed than accumulated — and the overall momentum profile falling below the level typically required for a constructive setup, suggesting institutional positioning has shifted toward the sell side.
↑ImprovingMomentum breakdown
- Expectation
- On-balance volume turns positive and sustains an upward slope for 2 consecutive months, confirming that distribution pressure has reversed.
CounterThe stock remains above its 200-day moving average, meaning the long-term trend is intact; the current weakness may represent a normal consolidation within an ongoing advance rather than a structural shift in institutional sentiment.
Per-dimension breakdown
Quality
8.3/10data confidence 100%| Component | Sub-score |
|---|---|
| ROE | 7.6 |
| ROA | 7.1 |
| Gross margin | 10.0 |
| Op margin | 10.0 |
| Net margin | 10.0 |
| Current ratio | 5.1 |
| FCF quality | 9.0 |
| Moat | 8.2 |
| Rule of 40 | 8.1 |
| Piotroski F | 7.8 |
- ▸Strong margins: 23%
- ▸Excellent cash conversion: 120% FCF/NI
- ▸Wide economic moat
- ▸Compounder quality: strong returns + growth
Growth
5.0/10data confidence 67%| Component | Sub-score |
|---|---|
| Rev growth | 8.0 |
| EPS growth | 2.0 |
- ▸Strong growth: 22% YoY
Momentum
5.8/10data confidence 100%| Component | Sub-score |
|---|---|
| RSI | 5.5 |
| MACD | 0.0 |
| OBV | 10.0 |
| MA position | 9.0 |
| Volume | 4.3 |
- ▸Volume accumulation (rising OBV)
- ▸Above 200-day MA
Sentiment
7.6/10data confidence 100%| Component | Sub-score |
|---|---|
| LLM sentiment | 5.8 |
| Analyst rating | 9.0 |
| Price target | 7.7 |
- ▸Analyst upside: 20%
Insider
5.4/10data confidence 50%| Component | Sub-score |
|---|---|
| materiality | 5.0 |
| holder change | 5.8 |
- ▸Negligible insider selling — $4,322,303 (0.005% of mkt cap)
Peer rank
5.3/10data confidence 80%| Component | Sub-score |
|---|---|
| value rank | 1.2 |
| quality rank | 7.7 |
| growth rank | 7.4 |
- ▸Best-in-class margins
Technical
4.6/10data confidence 100%| Component | Sub-score |
|---|---|
| bollinger | 4.1 |
| support resistance | 3.4 |
| 52w position | 6.4 |
Risk (lower is worse)
6.1/10data confidence 100%| Component | Sub-score |
|---|---|
| short interest | 9.0 |
| days to cover | 8.6 |
| volatility | 2.8 |
| put call | 6.9 |
| implied vol | 4.6 |
| max pain risk | 3.0 |
| beta | 6.5 |
| debt equity | 8.5 |
| news risk | 5.0 |
- ▸Above max pain $205
- ▸Concentration risks: 1 HIGH, 1 MED (10-K Item 1A — sized via position_sizing, validated via buy_confidence)
Catalyst
6.4/10data confidence 100%| Component | Sub-score |
|---|---|
| erm | 5.0 |
| earnings history | 10.0 |
| earnings timing | 5.0 |
| surprise avg | 4.2 |
| news activity | 8.0 |
- ▸Perfect beat streak: 4Q
How the verdict was assembled
Engine trigger
Multiple concerning factors. Consider reducing position.
Engine technical detail
verdict_path:
L4:PATH_F_SELLPassed (6)
- MOMENTUM:5.8>=5.5
- INSIDER:OK
- NEWS_EVENTS:NONE_RECENT
- EARNINGS_PROXIMITY:112d clear
- SEMI_CYCLE_PEAK:CLEAR
- MATERIALS_CYCLE_PEAK:CLEAR
Failed (1)
- ASYMMETRY:0.8<1.5@spot
Warning (1)
- 8K_CSUITE_CHANGE:5.02 (officer departure/appointment)
Reward-to-Risk
0.75
Upside
+8.2%
Downside
10.9%
Sizing output
AVOID
SetupRange Bound — RSI 47 mid-range, Bollinger mid-band
EdgeNo clear edge — No clear edge identified
SuitabilityModerate — Balanced profile
Investment implication
The F-path SELL output reflects an overall score of 5.4 below the 5.6 soft trigger — multiple weakening dimensions accumulated rather than a single hard-floor breach. The strongest dimension ( Quality at 8.3) was not enough to lift the adjusted overall above the threshold. Co-occurring failed gates ( ASYMMETRY:0.8<1.5@spot) reinforce the read. Current asymmetry R:R is 0.75 — supplementary context, not the trigger for this path.
The strongest dimensions are Quality at 8.3, Sentiment at 7.6, and Catalyst at 6.4; the weakest are Value at 2.8, Technical at 4.6, and Growth at 5.0. The V9 engine flagged 1 failed gate with 1 warning, producing an asymmetric reward-to-risk of 0.75 and an engine sizing output of AVOID.
What would invalidate the thesis
Falsifying conditions — when triggered, the corresponding pillar's thesis is invalidated.
- P1Consistent Earnings Outperformance
Trip ifEPS surprise falls below 0% for 2 consecutive quarters.
- P2Stretched Valuation Limits Upside
Trip ifForward P/E compresses below 30 times, restoring a meaningful margin of safety.
- P3Momentum Headwind Distribution
Trip ifOn-balance volume turns positive and RSI rises above 60 for 2 consecutive months.
- P4Single Supplier Concentration
Trip ifCompany discloses at least 2 qualified alternative hardware suppliers in a public filing, eliminating single-source dependency and reducing supply-chain concentration risk.