Critical Review: Neonode (NASDAQ:NEON) and Cadence Design Systems (NASDAQ:CDNS)

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

Volatility & Risk

Cadence Design Systems has a beta of 1.13, indicating that its share price is 13% more volatile than the S&P 500. Comparatively, Neonode has a beta of 1, indicating that its share price has a similar volatility profile to the S&P 500.

Analyst Recommendations

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

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Cadence Design Systems	0	3	14	0	2.82
Neonode	1	1	0	0	1.50

Cadence Design Systems presently has a consensus price target of $380.59, indicating a potential upside of 6.64%. Neonode has a consensus price target of $6.00, indicating a potential upside of 229.67%. Given Neonode’s higher probable upside, analysts clearly believe Neonode is more favorable than Cadence Design Systems.

Earnings and Valuation

This table compares Cadence Design Systems and Neonode”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Cadence Design Systems	$5.30 billion	18.58	$1.11 billion	$4.29	83.19
Neonode	$2.06 million	14.83	$8.49 million	($0.32)	-5.69

Cadence Design Systems has higher revenue and earnings than Neonode. Neonode 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.

Insider & Institutional Ownership

84.9% of Cadence Design Systems shares are held by institutional investors. Comparatively, 11.6% of Neonode shares are held by institutional investors. 0.5% of Cadence Design Systems shares are held by company insiders. Comparatively, 23.9% of Neonode shares are held by company 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.

Profitability

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

	Net Margins	Return on Equity	Return on Assets
Cadence Design Systems	21.18%	28.44%	15.30%
Neonode	411.88%	-37.98%	-32.59%

Summary

Cadence Design Systems beats Neonode on 11 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 Neonode

Neonode Inc., together with its subsidiaries, develops optical sensing solutions for contactless touch, touch, and gesture sensing in the United States, Japan, South Korea, Germany, Switzerland, France, Sweden, China, and internationally. It also offers software solutions for machine perception to detect and track persons and objects in video streams from cameras and other types of imagers. In addition, the company sells touch sensor modules to OEMs, original design manufacturers, and systems integrators. Further, it licenses its zForce technology to original equipment manufacturers and automotive Tier 1 suppliers, as well as provides non-recurring engineering services related to application development. It serves office equipment, automotive, industrial automation, medical, military, and avionics markets. Neonode Inc. was incorporated in 1997 and is headquartered in Stockholm, Sweden.