Critical Comparison: Cadence Design Systems (NASDAQ:CDNS) vs. Pegasystems (NASDAQ:PEGA)

Cadence Design Systems (NASDAQ:CDNS) and Pegasystems (NASDAQ:PEGA) are both computer and technology companies, but which is the superior investment? We will compare the two businesses based on the strength of their institutional ownership, dividends, risk, earnings, profitability, analyst recommendations and valuation.

Profitability

This table compares Cadence Design Systems and Pegasystems’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Cadence Design Systems	22.18%	29.36%	15.60%
Pegasystems	11.98%	44.72%	15.17%

Insider and Institutional Ownership

84.9% of Cadence Design Systems shares are held by institutional investors. Comparatively, 46.9% of Pegasystems shares are held by institutional investors. 2.0% of Cadence Design Systems shares are held by insiders. Comparatively, 49.7% of Pegasystems shares are held by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock will outperform the market over the long term.

Analyst Ratings

This is a breakdown of current recommendations for Cadence Design Systems and Pegasystems, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Cadence Design Systems	1	1	11	0	2.77
Pegasystems	0	3	9	0	2.75

Cadence Design Systems currently has a consensus target price of $325.23, indicating a potential downside of 0.99%. Pegasystems has a consensus target price of $54.05, indicating a potential downside of 0.09%. Given Pegasystems’ higher probable upside, analysts plainly believe Pegasystems is more favorable than Cadence Design Systems.

Volatility & Risk

Cadence Design Systems has a beta of 0.99, suggesting that its share price is 1% less volatile than the S&P 500. Comparatively, Pegasystems has a beta of 1.13, suggesting that its share price is 13% more volatile than the S&P 500.

Earnings & Valuation

This table compares Cadence Design Systems and Pegasystems”s gross revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Cadence Design Systems	$4.64 billion	19.32	$1.06 billion	$3.95	83.16
Pegasystems	$1.50 billion	6.18	$99.19 million	$1.03	52.52

Cadence Design Systems has higher revenue and earnings than Pegasystems. Pegasystems is trading at a lower price-to-earnings ratio than Cadence Design Systems, indicating that it is currently the more affordable of the two stocks.

Summary

Cadence Design Systems beats Pegasystems on 10 of the 14 factors compared between the two stocks.

About Cadence Design Systems

Cadence Design Systems, Inc. provides software, hardware, services, and reusable integrated circuit (IC) design blocks worldwide. The company offers functional verification services, including emulation and prototyping hardware. Its functional verification offering consists of JasperGold, a formal verification platform; Xcelium, a parallel logic simulation platform; Palladium, an enterprise emulation platform; and Protium, a prototyping platform for chip verification. The company also provides digital IC design and sign off products, including Genus synthesis and Joules RTL power solutions, as well as Modus DFT software solution to reduce systems-on-chip design-for-test time; physical implementation tools, such as place and route, optimization, and multiple patterning preparation; and Innovus implementation system, a physical implementation system. In addition, it offers custom IC design and simulation products to create schematic and physical representations of circuits down to the transistor level for analog, mixed-signal, custom digital, memory, and radio frequency designs; and system design and analysis products to develop printed circuit boards and IC packages, as well as to analyze electromagnetic, electro-thermal, and other multi-physics effects. Further, the company provides intellectual property (IP) products comprising pre-verified and customizable functional blocks to integrate into customer's ICs; and verification IP with memory models to emulate and model the expected behavior and interaction of standard industry system interface protocols. Additionally, it offers services related to methodology, education, and hosted design solutions, as well as technical support and maintenance services. The company serves consumer, hyperscale computing, 5G communications, mobile, automotive, aerospace and defense, industrial, and life science industries. Cadence Design Systems, Inc. was incorporated in 1987 and is headquartered in San Jose, California.

About Pegasystems

Pegasystems Inc. develops, markets, licenses, hosts, and supports enterprise software in the United States, rest of the Americas, the United Kingdom, rest of Europe, the Middle East, Africa, and the Asia-Pacific. The company provides Pega Infinity, a software portfolio comprising of Pega Customer Decision Hub, a real-time AI-powered decision engine to enhance customer acquisition and experiences across inbound, outbound, and paid media channels; Pega Customer Service to anticipate customer needs, connect customers to people and systems, and automate customer interactions to evolve the customer service experience, as well as to allow enterprises to deliver interactions across channels and enhance employee productivity; and Pega Platform, an intelligent automation software for increasing efficiency of clients’ processes and workflows. It also offers Situational Layer Cake that organizes logic into layers that map to the unique dimensions of a client’s business, such as customer types, lines of business, geographies, etc.; Pega Express Methodology and low code that connects enterprise data and systems to customer experience channels; Pega Cloud that allows clients to develop, test, and deploy applications; Pega Catalyst, which helps clients to transform and prototype their customer journeys; Pega Academy, which offers instructor-led and online training to its employees, clients, and partners; and global service assurance and client support services. It primarily markets its software and services to financial services, healthcare, communications and media, government, insurance, manufacturing and high tech, and consumer services markets through a direct sales force, as well as partnerships with technology providers and application developers. Pegasystems Inc. was incorporated in 1983 and is headquartered in Cambridge, Massachusetts.