It’s not often that a conversation with a CEO leaves me dazzled. But that’s what happened to me on March 4 after speaking with Ajei Gopal, CEO of Ansys, a Pittsburgh-area engineering software company.
This 50 year old company enjoyed 24% revenue growth in the fourth quarter — reporting some $1.7 billion in 2020 revenue and finishing March 4 trade with a $26.7 billion market cap — and it looks to have a bright future ahead.
The recent swoon in tech stocks and disappointing guidance have taken a big bite out of its shares — since February 12 Ansys has fallen 24% from its peak of $404, according to Morningstar.
For those who believe it’s smart to invest in companies with great long-term growth potential when the stock price is down, . Here are three reasons I think Ansys is worth examining:
Large market opportunity
Winning competitive strategy
Compelling growth trajectory
(I have no financial interest in the securities mentioned in this post).
Ansys Financial Results
Ansys software simulates the physical world so product developers can get products to market faster and at a lower cost without the need to build a physical prototype.
Ansys’s more than 4,000 employees invent and apply its simulation expertise in a range of disciplines — including physical structures, fluids, semiconductors, power, optical, and electromagnetics — to serve over 50,000 customers in industries such as aerospace, defense and automotive.
Its customers include BMW, Porsche, Lucid Motors, Honeywell, Samsung and Axiom Space which plans to launch the first private mission to the International Space Station later in 2021
Ansys reported expectations-beating revenue and earnings per share growth for the final quarter of 2020. According to Zacks Equity Research, its 24% increase in fourth quarter revenues was 11% above the Zacks Consensus Estimate. Its $2.96 EPS for the quarter was 18% higher than Consensus and 32% more than the year before.
Ansys has beaten estimates for several quarters. Zacks noted that the company had exceeded revenue and EPS estimates for four consecutive quarters.
Ansys guided investors to expect slower growth for all of 2021. According to Nicole Anasenes, Ansys CFO, full year 2021 non-GAAP revenue is forecast to be up between “6% and 11% — in the range of $1,790 million to $1,875 million.”
Ansys is aiming at a large, growing market opportunity. As Gopal told me, Ansys’s total addressable market is $8.5 billion and is “growing significantly — we expect it to triple in the next seven to 10 years.”
The pandemic had a mostly positive effect on demand for Ansys’s services. “While liquidity challenges reduced demand for our services among small and medium-sized businesses, the pandemic increased the number of R&D engineers who were working from home.”
Ansys helped its larger customers keep their R&D going. “Our larger customers were initially concerned that R&D — which is the last thing that companies cut in a recession — would fall apart. But we saw that engineers are perfectly capable of working from home without going into the labs. We proved that we could make engineers successful,” said Gopal.
Winning competitive strategy
Large companies have accelerated their product development roadmaps during the pandemic. “This has created more demand for our products. There has also been strong demand from designers of eco-friendly electronic vehicles and in commercial aerospace,” he explained.
To win new customers, Ansys must persuade engineers and “higher ups.” As Gopal said, “The engineers — who are the end-users of our product — have a strong vote. And when we talk with division presidents, they look for personalized return on investment analysis. I met with such an individual who had a reputation as very tough. He told me that 25 years before, he had been an engineer and Ansys’s product had fixed a problem that enabled him to meet his deadline. He has become our biggest champion.”
Ansys persuades such engineers to use its products thanks to the accuracy of its simulations and the ability of its products to integrate different scientific disciplines. “We polled customer CEOs for four years and they love the accuracy of our products. We are represented across all scientific disciplines. For example, in crash testing we can integrate disciplines — such as fluid flow, electronics, and structural — to simulate airbags,” he said.
Ansys builds very close technical relationships with its customers. As Gopal explained, “We have ACE [Ansys Customer Excellence] engineers — including 760 PhDs. They are skilled to know what customers are looking for and help them solve problems — for example, when they are struggling to get their models working.”
Ansys takes affirmative steps to keep the company from losing its ability to sense and adapt to changing threats and opportunities. “There are 4,800 people in the company and it feels like we are a startup — we’ve more than doubled the number of people since I joined in 2016,” he said.
Ansys uses many organizational methods to keep the startup feel. “Our ACE engineers help with the sprint of agile development — they can figure out how to prioritize our R&D portfolio in part based on how customer needs are changing. We are not monolithic — we encourage business units to be responsible for physics. There is interaction across the company. We have 1,000 companies in our startup program that are pre-revenue — founders and a dream. We give them heavily discounted software and we learn from them. And we partner with 3,000 universities who use Ansys for R&D and we help them in curricular development,” said Gopal.
Compelling growth trajectory
Ansys has a compelling longer-term growth trajectory. “We have five tailwinds: electrification — electric vehicles and submersibles; autonomy — self-driving care and automatic robots; 5G telecommunications — which has finicky signals; industrial Internet of Things; and Ecoactivity.”
Analysts were somewhat disappointed with Ansys’s 2021 guidance. As Morningstar
MORN
Equity Analyst Julie Bhusal Sharma wrote, “[Ansys’s] guidance was a step down from what we were projecting in 2021 on both the top and bottom lines. We continue to view shares as overvalued and recommend waiting for a greater pullback before investing.”
It is possible that its share could fall further — presenting an even better entry point for those looking to Ansys as a long-term investment in a good company.
NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.
Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.
“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”
Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.
Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.
Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.
Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.
In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.
The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.
And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
