Best Stocks: Earnings are booming at this company taking market share in a niche software space

CNBC

a day ago

(This is The Best Stocks in the Market , brought to you by Josh Brown and Sean Russo of Ritholtz Wealth Management.) Josh — Computer assisted design (CAD) is one of the most critical software niches in most industries, turning out finished products, from aerospace and defense to iPhones and laptops, tractors and skyscrapers. If it's built in the physical world, it's likely to be built with CAD assisting the designers during the process. Many investors are familiar with Autodesk, the largest player in the space, but we're going to tell you about a competitor whose stock has recently been added to our Best Stocks in the Market list. Today we're going to talk about PTC , formerly known as Parametric Technologies. PTC was founded in Boston, Massachusetts in 1985 where it is still headquartered 40 years later. The company has been reporting quarter after quarter of accelerating growth rates and cash flow generation. Sean will tell the story below and I'll be back with some risk management for people taking the trade. Best Stock Spotlight: PTC Inc (PTC) On the list since: 7/09/2025. Sean — PTC is a technology company that develops software to help businesses design, manufacture, and manage products. Its solutions include computer-aided design (CAD) tools, product lifecycle management (PLM) systems, and industrial Internet of Things (IoT) platforms that connect products to data for real-time monitoring and analytics. The company has this tagline on its website: "You can't go a single day without encountering a product engineered, manufactured, or serviced with PTC software." This company is everywhere. They helped design Bose audio systems and John Deere tractors, and their software helps manage Philips MRI machines. Thus far, AI's biggest leaps have been in software — language models, image generation, and analytics —but the combination of AI with increasingly capable robots is thought to be the next domino to drop. As AI improves, robots will be able to handle more complex, unstructured tasks that were previously too unpredictable for automation. Everything from warehouse sorting and precision assembly to elder care and restaurant work. Looking at PTC's current fundamentals, the business is growing at a fast clip. They saw 14% ARR growth year-over-year, 24% revenue growth and 14% free cash flow growth, all exceeding prior guidance. EPS more than doubled, and their operating margin expanded by over 1,400 basis points to 33%. PTCs business is seeing a lot of traction. Operating income grew from $30 million in Q1 2019 to over $200 million in the most recently reported quarter, or about 7x in 6 years. PTC trades at a 49x trailing PE ratio, which is a decent premium to the industry average of 34x. Its industry comps include Autodesk, Ansys (acquired by Synopsys) and Cadence Design Systems (all are on the Best Stocks list). One of the reasons for its premium is the quality of its financials. PTC's recurring revenue accounted for 93% of 2024 revenue, providing a heightened ability to forecast budgets and cash flows. Traders are taking notice of the business, as are competitors. In July, Bloomberg News reported rumors of AutoDesk evaluating a cash offer for PTC, which has since been ruled out by ADSK management. PTC fits nicely within the AI/robotics narrative. Its deep integration into product design and lifecycle management positions it as an enabler of the coming wave of AI-powered robotics. Risk management Josh — As you can see in the chart below — the stock is now consolidating a huge post-earnings reaction from their recent report. Traders can use that rising 50-day moving average at $188 as a "moment of truth" while investors may want to give it a bit more leash. The 200-day should be turning higher even if the stock continues to consolidate. I want to be long so long as it remains above using weekly closing prices as my line in the sand. DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. 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