ONE LEVEL DEEPER
CDNS
Warren Buffett frameworkThe Owner-OperatorBenjamin Graham frameworkThe Value ArchitectMichael Mauboussin frameworkThe Expectations EngineerHoward Marks frameworkThe Cycle WhispererPeter Lynch frameworkThe Everyday Edge

Revenue grew 14.1% with a simple chip-design software story, but 87% institutional ownership leaves little room for discovery.

cautiousLeaning Bullishconviction

This framework sees a fast grower with a clear story and strong fundamentals, but institutional over-ownership and insider exodus signal the easy gains are behind us.

THE LENSES
THE CLASSIFICATIONpromising

Which of Lynch's six categories fits this company?

Revenue grew 14.1% TTM with Q4'25 revenue up 7.6% YoY to $1.44 billion
EPS growth of 34.9% in Q4'25 demonstrates earnings leverage
Operating margins consistently above 30% with 32.3% in Q4'25
91% revenue concentration in Product and maintenance segment shows focused growth

This framework classifies Cadence as a solid fast grower, though not the explosive 20%+ Lynch loved most. The 14.1% revenue growth with expanding profitability and strong margins fits the fast grower profile, positioned between stalwart and true fast grower territory.

Revenue
THE GROWTH STORYcompelling

Can an eleven-year-old understand why this company grows?

Cadence makes the software that designs computer chips — simple story
91% of revenue from Product and maintenance shows clear focus
Revenue correlates 97.6% with inflation, indicating pricing power
AI-driven design tools address growing chip complexity

The growth story is crystal clear: as chips get more complex, companies need better design software. Cadence sells the picks and shovels for the semiconductor gold rush, with AI making their tools indispensable.

Revenue by Segment
WHERE IN THE STORYmature

Are we in the early, middle, or late innings?

Revenue growth accelerating from 10.9% to 14.1% suggests momentum
Operating margins at 88th percentile indicate maturity
ROIC declined from 7.05% peak to 4.3% as growth investments increased
37 consecutive earnings beats with muted 0.93% average reaction shows saturation

This framework sees middle-to-late innings. The growth story is well-established, margins are near peak levels, and the market barely reacts to perfect execution anymore. The best discovery phase has passed.

Operating Margin
THE INSTITUTIONAL FOOTPRINTsaturated

Is this over-owned by the big money?

Institutional ownership at 86.9% in Q4'25, up from 85.6%
Price targets range from $275-$418 showing 52% dispersion
203 new institutional positions opened in Q4'25
Average institutional holding period of 42.6 quarters indicates long-term commitment

Classic Lynch over-ownership situation. With 87% institutional control and everyone already positioned, who's left to buy? The wide target dispersion suggests uncertainty, but the high ownership means limited upside catalyst potential.

Price Targets
275
low
418
high
385
median
374.71
consensus
KEY NUMBERS
VERDICT

Applying the Lynch framework reveals a quality fast grower with a simple, understandable story — exactly what Lynch sought. Yet the combination of 87% institutional ownership, 20 quarters of insider selling, and market indifference to perfect execution suggests we're late to this party. The framework appreciates the business quality but questions whether any edge remains for individual investors. When insiders who built a $1.44 billion revenue machine sell for five straight years, should we be buying what they're selling?

This analysis applies Peter Lynch's published investment framework to publicly available financial data. It is not authored by, endorsed by, or affiliated with Peter Lynch. Educational purposes only. Not financial advice.

OTHER PERSPECTIVES
Warren Buffett framework
The Owner-Operator
Leaning Bullish
Michael Mauboussin framework
The Expectations Engineer
Leaning Bullish
Benjamin Graham framework
The Value Architect
Neutral
Howard Marks framework
The Cycle Whisperer
Leaning Bearish
Explore
Verisk Analytics, Inc.VRSKAmazon.com, Inc.AMZNNVIDIA CorporationNVDAGilead Sciences, Inc.GILDIntuitive Surgical, Inc.ISRGIDEXX Laboratories, Inc.IDXX
EDUCATIONAL ONLY · NOT FINANCIAL ADVICEv2