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.
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.
“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.
Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.
But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.
Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.
“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.
“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.
A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.
It would also be “counter to what they’ve signaled,” he said.
More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.
“That’s going to be more important than the size of the cut itself,” he said.
In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.
“Here, the labour situation is worse than what we see in the United States,” he said.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 13, 2024.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
