Autodesk (Nasdaq:ADSK) is a great company, but tech stock investors don't care nearly as much about "great company" as they do "lots and lots of growth." Unfortunately, Autodesk is something of a victim of its own success in that regard, and the company is now seen as inextricably tied to overall global macroeconomic growth. While a discounted cash flow analysis suggests that Autodesk shares are significantly undervalued, value-oriented investors need to know that realizing that value is going to likely take quite some time.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

Mixed Results Sour Q1 Results
Autodesk's first quarter results don't look bad at all on first glance, but there are a few details here and there that seem to be weighing on the Street's sentiment about them.

Revenue did rise more than 11% from last year, and declined just 1% on a sequential basis. License revenue rose almost 12% as reported, and maintenance revenue rose 11%. Suite revenue continues to come along nicely, growing 34% this quarter.

Unfortunately, maintenance billings up were up a lot less (about 1%), and sluggish performance in Europe (up 4%) overshadows the double-digit growth in North America and Asia.

Autodesk has long posted good margins, and this quarter was no exception. Gross margin was basically even with the year-ago and fourth quarter at about 90%. Operating income, though, rose 20%.

Less Optimism About the Macro Picture
I suspect that a fair portion of the skepticism on Autodesk is tied to economic issues well out of their control. Europe is clearly weakening and the recent dip in the ABI below 50 suggests that commercial real estate in North America isn't in the clear yet.

To that end, management did issue somewhat iffy guidance for the second quarter, guidance that points to a more back-end-loaded 2012. Companies ranging from IBM (NYSE:IBM) to Siemens (NYSE:SI) to General Electric (NYSE:GE) have been echoing this same sort of outlook, but that doesn't mean the Street wants to hear it. What's more, the company drew down its backlog to some extent, heightening some of the risk as the year develops.

SEE: Can Earnings Guidance Accurately Predict The Future?

The Bull Story Is Well Known
Part of the bad news on Autodesk is that the bull story hasn't changed much in years. Autodesk's AutoCAD is basically the standard in CAD/CAM and has been for quite some time. Moreover, the company has been smart in partnering with colleges and vocational schools and seeing that young engineers and architects train on its software from Day One. So not only are competing offerings from Dassault (OTCBB:DASTY) and Parametric (Nasdaq:PMTC) often more expensive anyway, but the retraining costs can be substantial.

Along the way, Autodesk hasn't gotten cute or especially ambitious; there haven't been any questionable new business expansions or acquisitions. Instead, the company takes incremental steps like the introduction of a cloud-based system or the suite concept.

The Bottom Line
Autodesk clearly isn't insulated from the global economic situation - revenue dropped significantly from 2008 to 2009 and hasn't yet regained the former peak. Still, emerging markets continue to adopt more sophisticated design and production methodologies, including digital machine tools and CAD/CAM software. Moreover, there are ongoing update and refresh cycles that keep pulling revenue from the existing customer base.

Autodesk seems to trade at a real discount to its cash flow-based value. Even as revenue growth slows from the double-digit pace of the past decade and free cash flow follows, this company should continue to accumulate cash that it can return via dividends and buybacks. While macroeconomic worries may keep these shares down during the summer, patient value-hounds may want to invest the time in some due diligence here.

SEE: Understanding Free Cash Flow (Video)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Personal Finance

    How Tech Can Help with 3 Behavioral Finance Biases

    Even if you’re a finance or statistics expert, you’re not immune to common decision-making mistakes that can negatively impact your finances.
  3. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  4. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  5. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  6. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  7. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  8. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  9. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  10. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center