Is Cadence Design Systems, Inc. overvalued or undervalued?

As of 28 July 2025, the valuation grade for Cadence Design Systems, Inc. has moved from expensive to very expensive, indicating a significant increase in perceived valuation. The company is currently considered overvalued based on its high valuation ratios, including a P/E ratio of 87, an EV to EBITDA of 56.23, and a PEG ratio of 22.99. In comparison, peers such as Oracle Corp. have a P/E of 51.69 and Salesforce, Inc. has a much lower P/E of 33.28, highlighting the premium Cadence is trading at relative to its industry.
Despite its strong performance, with a year-to-date return of 21.44% compared to the S&P 500's 12.22%, the elevated valuation metrics suggest that the stock may not be justified at its current price level. The company's return on capital employed (ROCE) stands at an impressive 33.32%, yet this does not mitigate the concern of its very expensive valuation status.