SNPS

We rate SYNOPSYS INC (SNPS) as a Reduce with a composite score of 48.7/100 at a current price of $439.53. The quantitative profile shows weakness across multiple dimensions, suggesting limited upside potential and elevated risk of underperformance relative to peers over the next 12 months.

The rating is primarily driven by strength in momentum (61th percentile) and value (53th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (21th percentile) and quality (47th percentile) tempers our overall conviction. We assign a Narrow Moat rating (53/100), Medium uncertainty, and Standard capital allocation.

Key items to watch: quarterly earnings execution and sector-level competitive dynamics. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

SYNOPSYS INC holds a top-quartile position (#0 of 50) within the Services sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 48.7/100 places it at rank #2227 in our full 7,333-stock universe. With a $84.3B market capitalization, SYNOPSYS INC operates at meaningful scale within the Services sector, providing competitive advantages in distribution, procurement, and customer reach.

The near-term outlook is constructive, with revenue growing at 20% and momentum in the 61th percentile confirming positive market sentiment and institutional accumulation. The combination of strong top-line growth and favorable price dynamics suggests the company is executing well on its growth strategy. Investment factor at the 21th percentile indicates reinvestment patterns that investors should monitor for sustainability.

The margin cascade tells an important story: gross margins of 80% (+20.6pp vs sector) narrow to operating margins of 18% (+15.0pp vs sector) and net margins of 20.6%, yielding a gross-to-net conversion rate of 26%. This conversion rate is typical for the sector, suggesting a standard cost structure without notable efficiency advantages or disadvantages.

At a current price of $439.53, SYNOPSYS INC is trading near fair value based on current fundamentals. Our value factor score of 53/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 65.3x (a 175% premium to the sector median of 23.7x), EV/EBITDA of 84.6x (at a premium), P/B of 3.0x, P/S of 13.3x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis finds only partially justified by current fundamentals.

We assign a Medium uncertainty rating to SYNOPSYS INC. The stock presents a balanced risk profile: elevated market sensitivity (beta of 1.36) and elevated valuation multiple (P/E 65.3x) that leaves limited margin for error. While not risk-free, the core business fundamentals are adequate to withstand moderate economic stress, and the range of potential outcomes around our fair value estimate is manageable.

Specific risk factors that inform our assessment include: elevated market sensitivity (beta of 1.36); elevated valuation multiple (P/E 65.3x) that leaves limited margin for error. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 52th percentile and quality factor at the 47th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 80% provide a buffer against cost pressures; large-cap scale ($84.3B) provides resilience. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate SYNOPSYS INC's capital allocation as Standard. Management has shown adequate — though not exceptional — stewardship of shareholder capital. Returns on equity stand at 4.5%, and the balance sheet is managed within acceptable parameters (D/E: 48%). Exemplary allocators typically sustain ROE above 20% and D/E below 50%; SYNOPSYS INC falls short on at least one dimension.

There is room for improvement in optimizing the capital structure or enhancing shareholder returns. Absent a dividend, the overall capital allocation framework would benefit from either higher reinvestment returns, improved balance sheet efficiency, or increased shareholder distributions. We will monitor for signs of strategic improvement that could warrant an upgrade.

In summary, SYNOPSYS INC receives a Reduce rating with a composite score of 48.7/100 (rank #2227 of 7,333). Our quantitative framework assigns a Narrow Moat (53/100, trend: stable), Medium uncertainty, and Standard capital allocation. The average factor score across quality, value, momentum, stability, and investment is 47/100.

Our analysis does not support a constructive view on SYNOPSYS INC at this time. The combination of the current quantitative profile, medium uncertainty, and standard capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.