Our view is that Autodesk, Inc. (ADSK) is a sell. Let’s look at recent action.
ADSK has traded in the range of $34.40 – $40.26 over the past 30 days, showing support around $34.50 and resistance at $37.50. The stock is trading below both the 50-Day Moving Average and the 200-Day Moving Average. RSI current level is at 34.68, and short term momentum and RSI indicators each show short term bearish movements and overbought conditions.
FUNDAMENTALS
ADSK’s short term bearish technical indicators are supported by weak fundamentals, as well.
The company reported that it earned $55.6 million, or 24 cents per share, for the quarter that ended April 30. That’s down from $78.9 million, or 34 cents per share, in the same quarter last year. Excluding one-time items such as the cost of paying employees in stock and options, per-share profit fell to 42 cents from 47 cents per share. Revenue fell 3 percent, to $570.4 million from $588.6 million, with sales dropping in each of the company’s regions.
Autodesk forecasts adjusted earnings of 39 to 44 cents per share on revenue of $550 million to $570 million its fiscal second quarter, which ends in July. GAAP operating margin was 14 percent, compared to 16 percent in the first quarter of fiscal 2013. Cash flow from operating activities was a record $224 million, compared to $139 million in the first quarter of fiscal 2013.
ADSK P/E stands at 36.05, which is above both the industry average of 25.52 and the S&P 500 average of 16.70. The stock is currently trading 9% above its intrinsic value of $31.94, which suggests that the stock is overvalued at these levels. ADSK’s current price/sales of 3.42 is above the average of its industry, 4.50. The beta of 2.21 implies higher volatility of the stock with respect to the S&P 500. ADSK’s Total Debt/Equity is 35.70% and is not acceptable for our model. ADSK pays no dividend.
OPTIONS STRATEGY
Technical and fundamental indicators both show a short-term bearish signals for ADSK. Investors should consider the following debit put spread:
Buy July 2013 36.00 Puts at $1.40 and sell the July 2013 35.0 puts at $1.00.
The net debit to start is $0.40, and we recommend holding until spread price reaches $0.60.
This strategy will allow you to collect time premium for out of the money short puts and decrease the overall cost of the initial investment.
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