Operating margins hit 32.3% while insiders sold for 20 straight quarters — excellence in execution, exodus in ownership.
A wonderful business at a wonderful price — exactly the combination this framework warns against when insiders flee.
Does this company have an enduring competitive advantage?
This framework sees a textbook moat in mission-critical EDA software where switching costs lock in semiconductor designers. The margin stability through cycles and ability to collect cash before spending it demonstrates pricing power that competitors cannot match.
Are insiders acting like owners who love the company?
This framework sees a troubling pattern — those who know the business best have sold systematically for five years while timing buybacks poorly. When the folks running the store are heading for the exits while collecting record pay, a prudent owner takes notice.
If you bought this entire business today, would the earnings justify what you paid?
Applying this framework's math, paying $76 billion for $1.4 billion in earnings requires extraordinary faith. With treasuries yielding 4.33%, an owner could get 9x the yield risk-free — the premium demands growth this framework rarely sees sustained.
Are the earnings predictable and growing steadily?
This framework appreciates businesses that deliver like clockwork, and Cadence epitomizes predictability. The perfect beat record and inflation correlation suggest earnings an owner can count on regardless of economic weather.
Cadence presents this framework with a paradox — operational excellence paired with capital allocation concerns. The business earns monopoly-like margins selling mission-critical tools, yet those who built it are systematically exiting while the market pays 55x earnings. The math says wonderful businesses bought at wonderful prices make terrible investments. When insiders agree through their actions, should an outside owner disagree through their checkbook?
This analysis applies Warren Buffett's published investment framework to publicly available financial data. It is not authored by, endorsed by, or affiliated with Warren Buffett. Educational purposes only. Not financial advice.