Synopsys Inc (SNPS)

Conclusion

Synopsys provides design automation software and design IP to the semiconductor and electronics industries. At 466.97 USD on 9 November 2026, the company has a market capitalisation of 89.49 billion USD and an enterprise value of 96.72 billion USD.

The verdict is fair. The fair value band runs from 324.75 to 487.13 USD with a midpoint of 405.94 USD, giving a margin of safety of -13.1% at the current price. Against their own ten-year medians, the P/E stands at 83.1 versus 55.0, a premium of 51.1%, while EV/EBITDA (25.9 versus 37.1), price to free cash flow (32.1 versus 40.8), price to sales (9.5 versus 10.6) and price to book (2.9 versus 6.5) all sit at discounts. The DCF gives 218.26 USD per share, and the fair value from historical multiples is 593.62 USD. The reverse DCF implies growth of 21.6% a year, against revenue growth of 13.9% over five years and free cash flow per share growth of 12.3%.

What holds the case up: revenue has grown in each of the last ten years, with a five-year CAGR of 13.9%; net debt to EBITDA of 1.94x and an Altman Z-score of 3.93 point to a sound balance sheet; and free cash flow conversion over the last twelve months is 2.59. What would break it: ROIC of 4.8% against a WACC of 10.2%; an operating margin of 9.8% against a ten-year median of 16.2%; and a Piotroski score of 3 out of 9.

Financial health

Financial health is green, held up by the Altman Z-score, net debt to EBITDA and the current ratio, with interest coverage the only neutral reading. The current ratio is 1.34 and the quick ratio is 0.99, net debt to EBITDA is 1.94x, debt to equity is 0.35 and interest coverage is 3.08x. The Altman Z-score is 3.93, in the safe zone, although that model was designed for manufacturers and Synopsys is a software company, so the zone is only a rough guide. Insolvency risk: low, about 0.2% by the estimate of the Ohlson model over one to two years. The balance sheet figures are as of 31 July 2026, and the Ohlson estimate is as of 31 October 2025.

Earnings quality

Earnings quality is yellow: cash conversion and the earnings record support it, while the Piotroski score and share-based pay weigh it down. Free cash flow conversion is 2.59 on a trailing twelve-month basis and 1.09 over five years, and the accrual ratio is -0.0061, which points to cash backing reported earnings. Stock-based compensation equals 10.1% of revenue, and free cash flow after that charge is 1.84 billion USD. The five-year share count CAGR is 0.76%, so shares have grown slightly rather than shrinking through buybacks. The Piotroski score is 3 out of 9. The Beneish M-score is not available. The company beat earnings expectations in seven of the last eight quarters, with an average surprise of 4.2%. Analysts raised next-year estimates in 14 of the last 30 days' revisions, with a 90-day change of 7.9% and expected next-year EPS growth of 23.2%.

Profitability

Profitability is red, because return on invested capital sits well below the cost of capital and margins are under their long-run medians. ROIC is 4.81% against a WACC of 10.22%, a ROIC minus WACC value of -5.42%, which the company's own label describes as destroying value. The five-year median ROIC is 23.0%. Gross margin is 72.4% against a ten-year median of 78.0%, operating margin 9.8% against 16.2%, and net margin 11.4% against 18.0%. Return on equity is only 3.45%, so leverage is not flattering it. The DuPont split for October 2025 shows a net margin of 18.9%, an asset turnover of 0.146 and an equity multiplier of 1.70, meaning returns are held down by low asset turnover rather than inflated by debt.

Growth

Growth is green, with strong and consistent revenue expansion across all three horizons. Revenue CAGR is 15.2% over three years, 13.9% over five years and 12.1% over ten years, and revenue has grown in all ten of the last ten years. EPS CAGR is 9.4% over three years, 14.1% over five years and 19.2% over ten years. Free cash flow per share is the exception over the shorter term, with a three-year CAGR of -6.6%, although its five-year CAGR is 9.3% and its ten-year CAGR is 12.6%. Revenue and EPS growth both support the company's long record, but the recent slowdown in per-share free cash flow is worth watching.

Valuation

Valuation is yellow, with the verdict fair and a margin of safety of -13.1%. The fair value band runs from 324.75 to 487.13 USD, with a midpoint of 405.94 USD, and the price of 466.97 USD sits above that midpoint. Today's P/E of 83.1 is a premium of 51.1% to its ten-year median of 55.0, while EV/EBITDA, price to free cash flow, price to sales and price to book are at discounts of 30.2%, 21.3%, 10.7% and 55.8% to their medians. The DCF gives 218.26 USD per share at a discount rate of 10.79%, with terminal value making up 52.4% of that figure. The fair value from historical multiples is 593.62 USD. The reverse DCF implies 21.6% growth, against 13.9% revenue growth and 12.3% free cash flow per share growth over five years. The fair value is an order-of-magnitude estimate built on fixed assumptions, including a 5% equity risk premium and capped long-term growth, not a price target. The company does not pay a dividend.

Risks

The main risk is returns: ROIC of 4.8% against a WACC of 10.2% means each unit of invested capital currently earns less than its cost, so growth only adds value if returns improve. A net margin of 11.4% against a median of 18.0% and an operating margin of 9.8% against 16.2% would weigh on earnings if pricing or cost pressures persist. A Piotroski score of 3 out of 9 and stock-based compensation of 10.1% of revenue would weaken the quality case if they continue. Interest coverage of 3.08x leaves less room than the balance sheet ratios suggest if earnings fall. The Beneish M-score is not available, and the analysis has no debt maturity schedule and no revenue split by segment, so refinancing and segment-level risks cannot be assessed here.