Synopsys Q4 FY10/24 Earnings Review

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Sector Flows Matter

by Alex King, CEO, Cestrian Capital Research, Inc

Whether Synopsys ($SNPS) stock rises or falls from here is not really much to do with SNPS numbers at this point.

Earnings weren’t wonderful in my view and the guide isn’t great either (even allowing for year-end changes meaning fewer working days next quarter than in the comparable prior period). The company’s financials and indeed structure are in flux, a result of the acquisition of Ansys and the divestiture of smaller business units to satisfy antitrust regulators. That’s a lot of change for a company to go through and most companies going through this level of re-organization take a hit before they stabilize - if for no other reason than management distraction.

What matters to SNPS stock is whether capital rotates into semiconductor, or not. I believe it will; semiconductor sector ETF charts look to me to have a bullish setup as do most of the better chip stocks. But nothing is certain. Fortunately, SNPS stock is close to an important low so if you own the stock or are thinking of doing so, there is quite a nice risk/reward setup for a long play right now in my view.

We discuss this below, including a long trade idea with stop-loss and take-profit ideas.