Investment Thesis
Cadence demonstrates strong fundamental health with 14.1% revenue growth, healthy 29.3% operating margins, and robust free cash flow of $307M (20.8% margin). However, net income growth of only 5.1% significantly trails revenue growth, indicating margin compression and declining capital efficiency (ROE: 5.1%, ROA: 2.8%) despite a fortress balance sheet with zero debt.
Strengths
- Strong top-line growth of 14.1% YoY with $1.5B revenue demonstrates market demand
- Excellent free cash flow generation of $307M with 20.8% FCF margin showing high-quality earnings
- Conservative balance sheet with zero debt (Debt/Equity: 0.00x) and substantial cash reserves of $1.4B providing financial flexibility
- Healthy operating margin of 29.3% and net margin of 22.8% typical of strong software platforms
Risks
- Net income growth (5.1%) significantly lags revenue growth (14.1%), indicating concerning margin compression or expense acceleration
- Very low returns on equity (5.1%) and assets (2.8%) despite high absolute profitability suggest capital inefficiency or value-destructive capital allocation
- Elevated insider trading activity (20 Form 4 filings in 90 days) warrants monitoring for potential negative signals
- Divergence between revenue and earnings growth trajectory raises questions about cost structure sustainability
Key Metrics to Watch
- Operating expense trends relative to revenue growth - critical to understand margin compression drivers
- Return on Equity and Return on Assets trends - need to see improvement in capital efficiency
- Operating cash flow sustainability - ensure strong FCF is maintained as company scales
Financial Metrics
Revenue
1.5B
Net Income
335.7M
EPS (Diluted)
$1.23
Free Cash Flow
307.0M
Total Assets
12.1B
Cash
1.4B
Profitability Ratios
Gross Margin
N/A
Operating Margin
29.3%
Net Margin
22.8%
ROE
5.1%
ROA
2.8%
FCF Margin
20.8%
Balance Sheet & Liquidity
Current Ratio
1.47x
Quick Ratio
1.32x
Debt/Equity
0.00x
Debt/Assets
0.0%
Interest Coverage
13.64x
Long-term Debt
N/A
Disclaimer: This analysis is generated by AI based on publicly available SEC EDGAR filings.
It does not include stock price data and should not be considered financial advice.
All fundamental data is sourced from SEC public domain filings.
Always conduct your own research before making investment decisions.
Data Source: SEC EDGAR |
Analysis Date: 2026-05-06T12:18:55.399212 |
Data as of: 2026-03-31 |
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