Dissecting the Numbers for VMware, Inc. (VMW) and Autodesk, Inc. (ADSK)

VMware, Inc. (NYSE:VMW) shares are up more than 43.73% this year and recently increased 1.01% or $1.13 to settle at $113.16. Autodesk, Inc. (NASDAQ:ADSK), on the other hand, is up 60.78% year to date as of 10/12/2017. It currently trades at $118.99 and has returned 2.10% during the past week.

VMware, Inc. (NYSE:VMW) and Autodesk, Inc. (NASDAQ:ADSK) are the two most active stocks in the Technical & System Software industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.


Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect VMW to grow earnings at a 11.60% annual rate over the next 5 years.

Profitability and Returns

Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. VMware, Inc. (VMW) has an EBITDA margin of 24.53%. This suggests that VMW underlying business is more profitable VMW’s ROI is 12.00% while ADSK has a ROI of -25.10%. The interpretation is that VMW’s business generates a higher return on investment than ADSK’s.

Cash Flow 

The value of a stock is simply the present value of its future free cash flows. VMW’s free cash flow (“FCF”) per share for the trailing twelve months was +1.37. Comparatively, ADSK’s free cash flow per share was -0.41. On a percent-of-sales basis, VMW’s free cash flow was 7.91% while ADSK converted -4.42% of its revenues into cash flow. This means that, for a given level of sales, VMW is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. VMW has a current ratio of 2.00 compared to 1.20 for ADSK. This means that VMW can more easily cover its most immediate liabilities over the next twelve months. VMW’s debt-to-equity ratio is 0.17 versus a D/E of 5.02 for ADSK. ADSK is therefore the more solvent of the two companies, and has lower financial risk.


VMW trades at a forward P/E of 20.43, a P/B of 5.37, and a P/S of 6.16, compared to a forward P/E of 98.58, a P/B of 82.63, and a P/S of 13.35 for ADSK. VMW is the cheaper of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. VMW is currently priced at a -3.64% to its one-year price target of 117.43. Comparatively, ADSK is -3.93% relative to its price target of 123.86. This suggests that ADSK is the better investment over the next year.

The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.10 for VMW and 2.00 for ADSK, which implies that analysts are more bullish on the outlook for VMW.

Risk and Volatility

Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. VMW has a beta of 0.63 and ADSK’s beta is 1.96. VMW’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. VMW has a short ratio of 16.85 compared to a short interest of 2.72 for ADSK. This implies that the market is currently less bearish on the outlook for ADSK.


VMware, Inc. (NYSE:VMW) beats Autodesk, Inc. (NASDAQ:ADSK) on a total of 11 of the 14 factors compared between the two stocks. VMW is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, VMW is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, TA has better sentiment signals based on short interest.

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