Ansys: 10% Decline Year-To-Date, But Still Not Cheap Enough (Preview)

Company Update (ANSS US) (Neutral)

Summary

• Ansys stock fell 3% on Monday (June 7), taking its year-to-date decline to 10%, which we believe reflects how expensive it was previously.

• Both medium-term targets and the current 2021 outlook imply an EBIT growth of less than 10% each year, due to margin contraction.

• Q1 2021 showed an Annualized Contract Value growth of just 3% (excluding currency), though quarterly figures are volatile.

• Ansys stock is trading at a P/E of nearly 50x, based on non-GAAP EPS that excludes stock-based compensation; this may shrink to 40x.

• A less than 10% earnings growth, with valuation multiples flat or contracting, will give an annualized return of less than 10%. Avoid.

Why is Ansys Stock Down?

Ansys stock closed down 3% on Monday (June 7), bringing its year-to-date decline to 10%, a 25 ppt underperformance vs. the S&P 500:

Ansys Share Price vs. S&P 500 (2021 YTD)

Source: Yahoo Finance (07-Jun-20).

We downgraded our rating on Ansys stock to Neutral in May 2020. While Ansys shares have gained more than 20%…