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Analog Devices (ADI): analysis traps
Where its figures could mislead a reader, and what to check before taking them at face value · Data: Q3 FY26, to Aug 1, 2026, filed Aug 19, 2026; rules v1.1
Analog Devices (ADI): 1 rule of 10 triggered on the filings to Aug 1, 2026: adjusted profit = economic profit. 2 to review; 2 not applicable. Each is a question to verify, with the normal explanation that would produce the same figures.
Check these first
Adjusted profit = economic profit Triggered · severity medium · confidence low
Adjusted EPS was at least 10% above GAAP in 3 of the last 3 quarters (on average 25% above). Costs excluded every quarter (restructuring, stock compensation, amortisation of acquired intangibles, litigation) are a recurring cost of the business, not a one-off.
Innocent reading: A genuine one-off this year (an impairment, a settlement) that happens to span several quarters.
Low P/E at a cyclical peak = undervalued To review · confidence medium
Net income of $4.1B is at a high against a median of $1.6B over eight years; at 42.7× the market is not pricing it as cheap, but a multiple on this year's profit still understates the mid-cycle one (107.9×).
A precise DCF value = the true value To review · confidence high
The DCF's point value is 188.08 a share (price 361.01); 60% of it is the terminal value, a number about years no one has seen. Moving revenue growth (each year) by ±5 pts alone takes it from 155.94 to 225.43; across every method the research ran the range is 25 to 675. The value is a range; the decimals are not information.
Innocent reading: A stable, mature business with a narrow range of outcomes, where the point value is a fair summary.
Every rule
A01 FCF growth = the business improved Not triggered confidence high
Free cash flow rose $1.2B to $4.3B; working capital and lower capex explain 38% of it, so most of the gain is in operating cash flow itself.
The figures and how they are read
| Fiscal year before | FY24 |
| Fiscal year | FY25 |
| Operating cash flow, year before | $3.9B |
| Operating cash flow | $4.8B |
| Capex, year before | $730M |
| Capex | $534M |
| Free cash flow, year before | $3.1B |
| Free cash flow | $4.3B |
| Change in FCF | $1.2B |
| Change in capex | −$197M |
| Working capital: change in its cash contribution | $245M |
| Of which: capex cut | $197M |
| Of which: working capital released | $245M |
| Share of the increase that need not repeat | +38.2% |
| Operating cash flow before working capital: change | 714592000.00 |
FCF = operating cash flow − cash capex; ΔFCF = ΔOCF − ΔCapEx; the working-capital part is the change in the cash-bridge items (receivables, inventory, payables, accruals), with the sign of the cash flow statement
Source: FY25 (cash flow statement, fiscal year) · FY24 (cash flow statement, fiscal year before)
A07 Stock compensation added back = no economic cost Not triggered confidence high
Stock compensation is 2.9% of revenue: small enough that adding it back changes little.
The figures and how they are read
| Fiscal year | FY25 |
| Stock compensation | $322M |
| Revenue | $11.0B |
| SBC / revenue | +2.9% |
| Buybacks | $2.2B |
| Buybacks / SBC | 6.7 |
| Diluted shares, year before | 498.7M shares |
| Diluted shares | 496.7M shares |
| Diluted shares: change | -0.4% |
SBC / revenue from the cash flow statement's add-back; the diluted weighted share count year over year; buybacks from the financing section
Source: FY25 (stock compensation, buybacks and the diluted share count, fiscal year)
B02 Receivables growing = future cash is certain Not triggered confidence medium
Receivables grew 54% against revenue 40% in Q3 FY26; DSO 50 against a median of 44: collections are keeping pace with sales.
The figures and how they are read
| Quarter | Q3 FY26 |
| Revenue, year over year | +39.6% |
| Receivables, year over year | +53.8% |
| Quarter before | Q2 FY26 |
| Revenue y/y, quarter before | +37.2% |
| Receivables y/y, quarter before | +48.4% |
| Days sales outstanding | 50.2 |
| DSO, median of eight quarters | 44.4 |
| Receivables | $2.4B |
| Revenue | $4.0B |
receivables and revenue against the same quarter a year earlier; DSO = receivables / quarterly revenue × days, against the median of the eight quarters before
Source: Q3 FY26 (receivables and revenue) · Q3 FY25 (the same quarter a year earlier)
B08 Adjusted profit = economic profit Triggered severity medium · confidence low
Adjusted EPS was at least 10% above GAAP in 3 of the last 3 quarters (on average 25% above). Costs excluded every quarter (restructuring, stock compensation, amortisation of acquired intangibles, litigation) are a recurring cost of the business, not a one-off.
The figures and how they are read
| Quarter / adjusted EPS / GAAP EPS / gap | 2026-01-31 / 2.46 / 1.69 / 0.313; 2026-04-30 / 3.09 / 2.4 / 0.223; 2026-07-31 / 3.45 / 2.74 / 0.206 |
| Quarters with adjusted ≥ 10% above GAAP | 3 |
| Quarters compared | 3 |
| Latest gap | +20.6% |
the analysts' 'actual' (usually the company's adjusted EPS) against GAAP net income ÷ diluted shares for the matching quarter; a gap of 10% or more counts (the stand-in until three releases' reconciliation tables are on file)
Source: 2026-01-31 (adjusted 2.46 vs GAAP 1.69) · 2026-04-30 (adjusted 3.09 vs GAAP 2.40) · 2026-07-31 (adjusted 3.45 vs GAAP 2.74)
What would explain it innocently
- A genuine one-off this year (an impairment, a settlement) that happens to span several quarters
- Amortisation of acquired intangibles, which many investors also exclude by choice
- The analysts' 'actual' is not the company's own adjusted figure
What to look for in the filing
- The reconciliation table in the earnings release: which items, how much, how often
- Whether the same items were excluded in earlier years
What would show the trap does not apply
- The reconciliation shows the excluded items ending (a restructuring with its final charge, a settlement paid) and the gap to GAAP closes in the next quarters
- The excluded items are only amortisation of acquired intangibles and the cash paid for the deals is in the investing cash flow
Look again: next filing.
C02 Low net debt = no refinancing risk Not triggered confidence medium
$2.3B comes due within a year, 3.1× covered by cash and investments of $2.3B plus $4.9B of free cash flow.
The figures and how they are read
| Cash and investments | $2.3B |
| Debt | $9.1B |
| Net debt | $6.8B |
| Due within a year | $2.3B |
| Read from | the current portion of debt on the balance sheet |
| Free cash flow, twelve months | $4.9B |
| Cash plus free cash flow | $7.3B |
| Coverage of what is due | 3.1 |
| Due in the second year | — |
| Balance sheet date | 2026-08-01 |
due within a year from the maturity table (else the current portion of debt), against cash and investments plus free cash flow over the last twelve months (zero if negative); no credit lines assumed
Source: 2026-08-01 (debt maturities, cash and investments)
D03 EPS growth = profit growth Not triggered confidence high
EPS rose 163% and net income rose 158% in Q3 FY26; the share count fell 1.6%: EPS growth follows profit growth.
The figures and how they are read
| Quarter | Q3 FY26 |
| Quarter before | Q3 FY25 |
| EPS, year before | $1.04 |
| EPS | $2.74 |
| Net income, year before | $519M |
| Net income | $1.3B |
| Diluted shares, year before | 496.7M shares |
| Diluted shares | 488.8M shares |
| EPS growth | +162.5% |
| Net income growth | +158.4% |
| Diluted shares: change | -1.6% |
| eps from profit | $1.65 |
| eps from share count | $0.04 |
EPS and net income against the same quarter a year earlier; the EPS bridge attributes the change to profit first, then to the share count (the order is fixed and disclosed)
Source: Q3 FY26 (net income, diluted shares, EPS) · Q3 FY25 (the same quarter a year earlier)
E02 Low P/E at a cyclical peak = undervalued To review confidence medium
Net income of $4.1B is at a high against a median of $1.6B over eight years; at 42.7× the market is not pricing it as cheap, but a multiple on this year's profit still understates the mid-cycle one (107.9×).
The figures and how they are read
| market value | $176.5B |
| net income ttm | $4.1B |
| pe ttm | 42.70 |
| net income median fy | $1.6B |
| pe mid cycle | 107.90 |
| net income peak fy | $3.3B |
| years | FY18 / 1495.0; FY19 / 1363.0; FY20 / 1221.0; FY21 / 1390.0; FY22 / 2749.0; FY23 / 3315.0; FY24 / 1635.0; FY25 / 2267.0 |
| down years in window | 3 |
P/E on the trailing twelve months' net income against the P/E on the median net income of the last eight fiscal years (a mid-cycle stand-in); 'at a peak' = this year's profit at or above 90% of the best year and at least 1.3× the median
Source: Q3 FY26 (net income, trailing twelve months)
What would show the trap does not apply
- Profit holds at this level through the next two years (the eight-year peak was a new base, not a top)
- The industry's capacity and prices stay where they are rather than reverting
Look again: next filing.
E07 A precise DCF value = the true value To review confidence high
The DCF's point value is 188.08 a share (price 361.01); 60% of it is the terminal value, a number about years no one has seen. Moving revenue growth (each year) by ±5 pts alone takes it from 155.94 to 225.43; across every method the research ran the range is 25 to 675. The value is a range; the decimals are not information.
The figures and how they are read
| dcf value | 188.08 |
| price | 361.01 |
| terminal value share | +60.4% |
| swing by input | Revenue growth (each year) / ±5 pts / 155.94 / 225.43; WACC / ±1 pt / 168.5 / 212.62; Operating margin / ±3 pts / 172.44 / 203.73; Tax rate / ±5 pts / 177.54 / 198.63 |
| range all methods | 24.52; 675.0 |
the DCF's point value against the share of it that is the terminal value and the value at each input moved by one step (growth ±5 pts, WACC ±1 pt, margin ±3 pts …); the range across every method the research ran
Source: 2026-11-08 (valuation research)
What would explain it innocently
- A stable, mature business with a narrow range of outcomes, where the point value is a fair summary
- The inputs that matter most are themselves well known (a regulated return, a long contract)
What to look for in the filing
- Which input you believe differs from the research's and why
- What the price implies for growth (the reverse DCF on the fair-value page)
What would show the trap does not apply
- The DCF's value is robust to the terminal growth and discount rate (the range's low end is still above the price)
- The company's cash flows over the next three years track the DCF's early years
Look again: next filing.
J06 A bank's low P/E and high profit = safe Not applicable
not a bank
J08 A REIT's low net income = the dividend is unsafe Not applicable
not a REIT
What the statuses mean
Triggered: the filings show the pattern; read the normal explanations and the missing evidence before concluding anything. To review: one quarter or a weak signal; a reader's judgement, not a pattern. Not triggered: the pattern is absent on these figures. Insufficient data: the filings read so far do not hold what the rule needs; this is not a clean bill. Not applicable: the rule is not meant for this kind of company (a bank's working capital, a loss-making quarter's EPS growth). Out of date: the latest filing is more than fifteen months old.
Severity is what the pattern could mean for cash, value or solvency; confidence is how reliable the inputs and the reading are. The two are kept apart.
Record a view
A reader's judgement, grounds, what would change it and the next review; kept in the browser (needs JavaScript).
Every rule and the companies it triggers on → Analog Devices: cash flow → Earnings quality score →
Each rule reads the company's own filings by a fixed formula and says what would explain the same figures innocently. A triggered rule is a question to verify, not a finding of manipulation, and not a view on the stock. Missing data is shown as missing, never as clear. Not investment advice.