Shares of Synopsys Inc. (SNPS Quick QuoteSNPS - Free Report) hit a new 52-week high of $59.04 on Aug 23, 2016, eventually closing at $58.93. The shares have been particularly buoyant in recent times, jumping 7.9% over the past one month. The closing share price also represents a strong one-year return of 31% and a year-to-date return of 29.2%.

The price increase was supported by a significant rise in share volume. Average volume of shares traded over the last 10 days (1.02M) increased substantially from the average volume of shares traded over the last three months (901k).

What is Driving the Stock Upward?

This price appreciation can be attributed to the company’s better-than-expected third quarter of fiscal 2016 results announced on Aug 17, 2016. Also, third quarter revenues saw a year-over-year improvement, mainly on the back of higher adoption of Synopsys’ products and strength in hardware products. Moreover, the company provided an encouraging fourth quarter guidance and raised its fiscal 2016 guidance.

For fiscal 2016, the company now expects revenues in a range of $2.410–$2.425 billion (previously $2.360–$2.400 billion). The Zacks Consensus Estimate for revenues is pegged at $2.417 billion.

Non-GAAP earnings per share are now projected between $3.00 and $3.03 (previously $2.95 and $3.00). The Zacks Consensus Estimate for earnings is pegged at $1.72 per share. The company projects cash from operations in the range of $525 million to $545 million (previously $510 million to $530 million).

For fourth quarter fiscal 2016, the company expects revenues in the range of $621 million–$636 million (mid-point $628.5 million). The Zacks Consensus Estimate for revenues is pegged at $628 million. The company expects non-GAAP expenses within $483 million–$493 million. Management expects non-GAAP earnings per share in the range of 75 cents–78 cents, higher than the Zacks Consensus Estimate of 46 cents.

With respect to earnings surprise, this Zacks Rank #3 (Hold) stock has surpassed the Zacks Consensus Estimate in three out of the last four quarters with an average positive surprise of 25.1%.

Moreover, the stock looks attractive from a valuation perspective. This is because Synopsys currently trades at a forward P/E of 34.02x as against the industry group average of 67.50x, which signifies a huge upward potential.

Synopsys is a vendor of electronic design automation (EDA) software to the semiconductor and electronics industries. Synopsys has also made a few important acquisitions to build its product portfolio and stimulate growth. Acquisitions are central to the company’s growth strategy and are help it to gain access to newer markets and technologies. Also, since intense competition is making the EDA market tougher to penetrate, acquisitions have helped the company to boost revenues.

Furthermore, we believe the company’s recent product launches, acquisitions and deal wins will boost results, going ahead. Moreover, unique intellectual properties and global support provided by the company will likely drive its forthcoming results.

However, competition from Cadence Design Systems Inc. (CDNS Quick QuoteCDNS - Free Report) and Mentor Graphics Corp. , a challenging technology spending environment and uncertainty regarding the exact time of realizing acquisition synergies keep us on the sidelines.

Stock to Consider

A stock worth considering in the technology sector is Facebook, Inc. , which sports a Zacks Rank #1 (Strong Buy).

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