Synopsys (SNPS), Wednesday’s IBD 50 Stock to Watch, has rung in the New Year with a couple of nice gifts to investors: a breakout in December and a follow-on buying opportunity this week.
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Synopsis stock gained 86% in 2020, on the heels of a 65% advance in 2019, after trading effectively flat in 2018. It has gained more than 10% from its December breakout, and entered another buy zone on Wednesday.
On Tuesday, Needham raised the stock’s price target to 275 from 240, helping boost the stock past a three-weeks-tight buy point at 261.23. The note cited conversation with Synopsys CFO Trac Pham, which supported a positive macro view of the industry, as well as strong company product momentum heading into 2021. Wells Fargo had raised the stock’s price target to 285, from 265, on Jan. 3.
On Jan. 11, Bank of America downgraded the stock to neutral, from buy.
Stocks To Watch: Synopsys vs. Cadence
Synopsys is a leader in electronic design automation, a type of software used by engineers to design, among numerous other things, microscopic and increasingly complex circuitry patterns for semiconductors. Along with competitor Cadence Design Systems (CDNS), Synopsys is riding a wave in design automation driving its revenue well ahead of the overall semiconductor market.
The Jan. 3 Wells Fargo report said that the buildup of a domestic chip industry in China had “doubled global EDA growth in the past 12-18 months.” Manufacturers such as Apple (AAPL) and Microsoft (MSFT) have also boosted the market as they work to design chips in house, turning away from traditional suppliers such as Qualcomm (QCOM) and Intel (INTC). In addition, Synopsys and Cadence continue to grow their markets organically, developing new products to bring more industry sectors into the EDA fold.
Synopsys carries a close-to-perfect Composite Rating of 97, out of 99, from IBD. It ranks No. 2 in the Computer Software-Design industry group, right behind No. 1 Cadence. Cadence was an IBD 50 Stocks To Watch pick in August. The group itself on Wednesday ranked No. 63 among the 197 industry groups tracked by IBD.
Synopsys saw 48% of its fiscal 2020 revenue from the U.S. alone. China and South Korea were about 22%. Long-term debt was just over $100 million at the end of the fiscal year, giving Synopsys a nominal 2% debt-to-equity ratio, vs. a 16% ratio (also low) for Cadence. Synopsys reported $1.23 billion in cash on hand, up more than 69% from year-end 2019.
Stock Chart Analysis
Synopsys stock broke out on Dec. 16, and has since confirmed its uptrend with several bounces off its 21-day exponential moving average. It earned close attention by popping past a 3-weeks-tight pattern with a 261.23 buy point Wednesday. Volume was only slightly above average on Tuesday, but it marked the highest amount in over a week.
Volume action through the next few sessions could be telling for the young breakout.
In the meantime, Synopsys remains in a buy range through 274.29, and is up a bit more than…
Read More: IBD 50 Stocks To Watch: Synopsys Clears Its First Buy Point Of 2021