Autodesk, Inc. (ADSK) is a software and services company that specializes in 3D design, engineering, and entertainment. The San Rafael, Calif.-based company's technology is used in architecture, engineering, building, product design, manufacturing, media, and entertainment, allowing innovators to tackle big and small challenges.

The stock has declined 18.9% in price over the past three months and 20% over the past month. Closing yesterday's trading session at $254.19, the stock is currently trading 26.2% below its 52-week high of $344.39, which it hit on August 24, 2021.

Though the company reported robust revenue and earnings in its last reported quarter, it failed to meet analysts’ expectations for its fourth quarter business outlook. This has caused the stock’s price to plummet over the past week. In addition, because the company expects rising inflationary pressure to affect its future performance, the stock could remain under pressure in the near term.

Click here to check out our Software Industry Report for 2021

Here is what could shape ADSK's performance in the near term:

Business Headwinds

Autodesk delivered solid growth in earnings and revenue in its last reported quarter, but due to foreign currency and supply chain headwinds, it had to lower its full-year free cash flow projection. This caused the stock’s price to decline 17% the day after the earnings release. ADSK's $1.185 - billion to $1.2 billion fourth-quarter revenue estimate and its adjusted earnings of $1.41 - $1.47 per share slightly missed analysts' expectations. Autodesk CFO Debbie Clifford attributed the slowdown to "supply chain disruption and resulting inflationary pressures, a global labor shortage, and the ebb and flow of COVID."

Strong Profitability

ADSK's 31.3% trailing-12-months net income margin is 394.2% higher than the 6.3% industry average. Also, its ROC, ROA, and EBIT margin of 13.1%, 15.5%, and 16.1%, respectively, are higher than their industry averages. Furthermore, its $1.47 billion trailing-12-months cash from operations is significantly higher than the $112.30 million industry average.

Stretched Valuation

In terms of forward non-GAAP P/E, the stock is currently trading at 52.06x, which is 112.4% higher than the 24.52x industry average. And its 13.08x forward EV/Sales multiple is 216.6% higher than the 4.13x industry average. Also, ADSK's 13.14x forward Price/Sales is 220.4% higher than the 4.1x industry average.

POWR Ratings Reflect Uncertainty

ADSK has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. ADSK has a C grade for Value and Stability. The company's higher-than-industry valuation justifies the Value grade. In addition, the stock's 1.35 beta is consistent with the Stability grade.

Of the 169 stocks in the F-rated Software – Application industry, ADSK is ranked #40.

Beyond what I have stated above, you can view ADSK ratings for Growth, Quality, Momentum, and Sentiment here.

Bottom Line

ADSK witnessed a sell-off last week after failing to meet the market's expectations for the next quarter's revenue and earnings outlook. Because the company expects supply disruptions and inflationary pressure to hamper its future growth, we think investors should wait for its prospects to stabilize before investing in the stock.

How Does Autodesk Inc. (ADSK) Stack Up Against its Peers?

While ADSK has an overall C rating, one might want to consider its industry peers, Open Text Corporation (OTEX), Commvault Systems Inc. (CVLT), and Progress Software Corporation (PRGS), having an overall A (Strong Buy) rating.

Click here to check out our Software Industry Report for 2021

ADSK shares were trading at $258.66 per share on Wednesday morning, up $4.47 (+1.76%). Year-to-date, ADSK has declined -15.29%, versus a 24.86% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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