The addressable market for this obscure software company will triple over the next decade

Innovation and new products drive sales for almost every business. Customers are often lost when disruptors arrive with better offers than their competitors. Because R&D is an essential element in designing new solutions, creating new offerings and staying at the cutting edge of technology, investing in companies that operate in this space can be lucrative.

In order to reduce prototyping costs, many engineers simulate a product to get a feel for its performance without physically building it. ANSYS (NASDAQ: ANSS) is the world leader in advanced engineering simulation software.

An expanding market

When looking to the future, it’s clear that technologies like 5G, electric vehicles, and autonomous driving will have a huge presence. ANSYS serves all of these markets and provides powerful simulations of the behavior of these products in real life.

In 5G, ANSYS can help simulate semiconductors and electronic integration. It can also simulate how a 5G signal will be transmitted across different environments, like a city, for example.

For autonomous driving, ANSYS can create a realistic environment and predict the performance of LiDAR, cameras or speed sensors. There are many opportunities to use ANSYS software when designing various electric vehicle components, such as the thermal performance of the battery, the propulsion system or the many chips that go into the automotive industry.

ANSYS has wasted no time creating products that meet the needs of engineers as new technologies emerge. With new, more complex ideas materializing in the form of new technologies and new products, ANSYS predicts that the total addressable market (TAM) for simulation software will triple from $ 6.6 billion to about $ 17 billion. ‘by 2026.

Where does ANSYS work?

ANSYS has customers in almost every industry. With simulation software in structures, fluids, semiconductors, optics, and other categories, most businesses will have a use case for at least one of many offerings. Airbus, Volvo, Samsung, Pfizer and several other notable companies use ANSYS products and hardly overlap. Because of this diverse customer base, an economic downturn in one industry would not be a disaster for ANSYS.

In addition, ANSYS has several partners, including Autodesk (NASDAQ: ADSK) and Synopsis (NASDAQ: SNPS). With its many subsidiaries, ANSYS offers plug-in solutions that allow users of other software vendors to integrate seamlessly with its own product. For example, Synopsys, whose IC Compiler II software designs integrated circuits, uses ANSYS ‘RedHawk to calculate voltage drop and electromigration. Due to the close relationships and the complexity of the product, ANSYS has a real competitive advantage that few companies enjoy.

Consistency over time

Without a doubt, ANSYS has a huge market opportunity ahead of it. For an investment to make sense, the company providing these solutions must be strong, and ANSYS certainly is.

He has consistently made profits over the past 15 years. During this same period, its gross profit margin never fell below 84%. Even during the financial crisis of 2008 and 2009, ANSYS increased both its bottom line and its turnover. This resilience and consistency during tough times is an indication that ANSYS could be a smart investment, regardless of market conditions.

Simulation-driven

Competition in the engineering simulation market is extremely fragmented. Companies like Dassault Systèmes (OTC: DASTY) competes with ANSYS in structures and electronics but lacks other products. Most of the competitors offer offers for one or two segments, but nothing to do with the breadth of ANSYS ‘products. ANSYS focuses only on simulations, which gives it a single area of ​​the market to focus on.

ANSYS is known to take over smaller competitors who offer quality products. For example, Phoenix Integration was recently acquired, which will allow ANSYS to better track changes made to a product by different engineering teams.

Success present

The measure that management advocates as a key measure is the annual contract value, which is a proprietary non-GAAP measure for a better indication of growth rather than revenue. It includes, among other things, maintenance and license contracts. That number grew 25% in the last quarter and is expected to be in the lower teen age bracket for the full year, although management has a habit of exceeding expectations. While this does not represent crazy growth, it does indicate a restraint on the part of management not to grow too quickly and maybe expand too much.

Currently, ANSYS is about 10% below its all-time high, a nice discount for a company that operates in growing markets. As long as there is technological innovation, ANSYS will be there to assist engineers in a critical phase of new product development.