CDNS
Cadence Design Systems, Inc.
Technology · Software - Application · United States · Stock
Score Breakdown
Scored for Aggressive Growth profile
Sub-scores are 0–20 each; Model Score is weighted by your selected investment goal. How it works →
Why Ranked Here
- Profitability metrics are a clear strength, with a 28.2% operating margin and 10.9% return on assets anchoring the composite score positively.
- Revenue growth of 14.1% is solid, but the model tempered the growth score because net income and EPS growth lagged significantly, reflecting earnings quality concerns.
- The absence of a dividend contribution and no macro theme assignment together account for a meaningful portion of the score gap, limiting the total composite to the medium-risk Research Further range.
Why Not Higher
- The divergence between 14.1% revenue growth and only 5.1% net income growth, combined with a recent quarterly earnings pullback, prevented a higher momentum and growth score.
- Zero contribution from dividend and theme factors structurally caps the composite score regardless of how strong the profitability and growth components are.
Data Confidence
7 / 10
High — most data fields present
Why This Score
Grounded in figures from this company's SEC EDGAR filings — not a restatement of the score itself.
Revenue grew from FY2024's $4,641,264,000 to FY2025's $5,296,759,000, a gain of 14.1%. However, net income rose only 5.1% over the same period (FY2024: $1,055,484,000 to FY2025: $1,108,888,000), and diluted EPS increased 5.5% from FY2024's $3.85 to FY2025's $4.06.
The model rewarded solid top-line expansion but tempered the score because bottom-line growth lagged revenue growth meaningfully, suggesting rising costs or other headwinds compressed the conversion of revenue gains into earnings.
In FY2025, Cadence posted an operating margin of 28.2%, a net margin of 20.9%, and a return on assets of 10.9%.
The model rewarded these high-quality profitability metrics: a nearly 30% operating margin signals strong pricing power and cost discipline, while a double-digit return on assets indicates efficient deployment of the company's asset base.
Filing evidence currently available does not support a more specific explanation for this factor.
Revenue showed a consistent upward trend across the last four quarters: 2025Q2 $1,275,441,000, 2025Q3 $1,338,838,000, 2025Q4 $1,440,114,000, and 2026Q1 $1,474,220,000. Operating income rose sharply from 2025Q2's $241,797,000 to a peak of $463,335,000 in 2025Q4, then pulled back to $431,329,000 in 2026Q1. Net income followed a similar pattern, peaking at $388,136,000 in 2025Q4 before declining to $335,660,000 in 2026Q1.
The model recognized steady revenue acceleration but was tempered by the deceleration in both operating income and net income in the most recent quarter, suggesting the earnings trajectory is less uniformly positive than the top-line trend alone would imply.
Cadence Design Systems does not currently pay a dividend; this reflects a genuine characteristic of the company, not a data limitation.
The model assigns a score of zero for this factor because dividend income is absent, which will be a consideration for investors who prioritize income generation from their holdings.
Cadence Design Systems is not currently assigned to any of the 24 tracked macro themes in the model.
The absence of a theme assignment is a neutral classification outcome and does not reflect negatively on the company; it simply means the security does not map to one of the model's current macro theme categories, which accounts for the zero contribution from this factor.
Research Summary
AI-generated analysis reflects data and conditions as of the report date shown above. Verify any specific figures through primary sources before acting on this analysis.
Cadence Design Systems delivered strong top-line growth of 14.1% in FY2025, reaching $5.30 billion in revenue, supported by exceptional profitability metrics including a 28.2% operating margin and 20.9% net margin. However, bottom-line growth lagged meaningfully, with net income rising only 5.1% and diluted EPS up just 5.5%, suggesting rising costs are compressing earnings conversion. Quarterly momentum shows steady revenue acceleration but a notable pullback in operating and net income in the most recent quarter. The absence of a dividend and no current macro theme assignment limit the stock's appeal to certain investor segments, contributing to a medium risk, Research Further composite rating.
Plain English
Cadence is a highly profitable software company that grew revenues strongly last year, but its profits didn't keep up with sales growth, and its most recent quarter showed earnings slipping even as revenues kept climbing — so it's worth digging deeper before making any investment decision.
Bull Case vs. Bear Case
Bull Case
- Cadence posted a 28.2% operating margin and 20.9% net margin in FY2025, signaling strong pricing power and disciplined cost management relative to peers.
- Revenue grew 14.1% year-over-year to $5.30 billion in FY2025, and quarterly revenues have risen consistently across the last four reported quarters, reaching $1.47 billion in 2026Q1.
- A return on assets of 10.9% in FY2025 indicates the company is deploying its $10.15 billion asset base efficiently to generate earnings.
Bear Case
- Net income grew only 5.1% in FY2025 despite 14.1% revenue growth, indicating that rising costs or other headwinds are significantly compressing the conversion of top-line gains into bottom-line results.
- Operating income and net income both declined in the most recent quarter (2026Q1) after peaking in 2025Q4, raising questions about whether the earnings trajectory can keep pace with revenue growth.
- Cadence pays no dividend, which removes a key source of return for income-oriented investors and reflects a genuine characteristic of the company rather than a data gap.
What Could Change the Picture
Bullish Triggers
- A sustained re-acceleration of net income and operating income growth in coming quarters — closing the gap with the 14.1% revenue growth rate — would suggest cost pressures are easing and earnings quality is improving.
- Consistent operating margin expansion beyond the current 28.2% level would reinforce the thesis that Cadence has durable pricing power and scalable cost structure.
Bearish Triggers
- If the quarterly pullback in operating income from $463 million in 2025Q4 to $431 million in 2026Q1 continues or deepens, it would signal a structural deterioration in profitability rather than a temporary fluctuation.
- Continued widening of the gap between revenue growth (14.1%) and net income growth (5.1%) over future periods would indicate that cost pressures are becoming entrenched rather than transitory.
Risk Profile
Medium RiskCadence carries an interest coverage ratio of 12.8x in FY2025, suggesting manageable debt service obligations relative to operating income, but the recent quarter-over-quarter decline in both operating income and net income introduces uncertainty about near-term earnings stability. The deceleration in profitability metrics in 2026Q1 warrants monitoring to assess whether cost pressures are temporary or more persistent.
This report is for educational and research purposes only. It does not constitute financial, investment, legal, or tax advice — always conduct your own due diligence before making investment decisions.