Cadence Design Systems is scored 97 for moat and 100 for management. The management score rests on a return on invested capital of 14.1% and a gross margin of 86.4% — figures that describe a business turning capital into profit efficiently. Debt sits at 0.45x equity.
The valuation runs on assumptions chosen to understate rather than flatter. Growth is modelled at 14.6% a year, below the 15.0% actually measured over the last decade — the model caps growth rather than extrapolating a good run forwards. The exit multiple assumed is 29.1x. That produces an intrinsic value of $141.25, a 10-CAP price of $62.98 and a payback time price of $97.51, with the value zone set at the highest of the three, $97.51. Today's price of $350.73 is 260% above it.
The operating figures describe a business performing at a high level; the price asks for that performance to continue and then some. A margin of safety score of 20 is the measure of how little room that leaves for being wrong.
| Price | $350.73 |
| Market cap | $96.6B |
| P/E ratio | 69.7x |
| Return on invested capital | 14.1% |
| Gross margin | 86.4% |
| Debt to equity | 0.45x |
| Free cash flow yield | 1.9% |
| Growth rate used | 14.6% |
| Growth rate measured | 15.0% |
| Exit multiple assumed | 29.1x |
| Company | Moat | Buy price |
| Adobe Inc. (ADBE) | 83 | $402.62 |
| Datadog Inc. (DDOG) | 89 | $50.46 |
| Applovin Corp (APP) | 96 | $210.61 |
| Automatic Data Processing (ADP) | 83 | $145.49 |
Every number above is built on assumptions that can be changed. In Moatly you can move the growth rate, the exit multiple and the margin of safety and watch every figure recalculate, so you are testing your own view of Cadence Design Systems rather than accepting ours.