AUTODESK INC. $38 (Nasdaq symbol ADSK; WSSF Rating: Average) makes AutoCAD, the world’s top selling computer aided design program. About 4 million architects and engineers in over 100 countries use it to design and test new buildings and products. This business supplies nearly 90% of its revenue. The remainder comes from programs that filmmakers use to create special effects.

In its fourth fiscal quarter ended January 31, 2006, Autodesk earned $0.33 a share (total $83.0 million), up 26.9% from $0.26 a share ($65.8 million) a year earlier. If you disregard restructuring costs and other unusual items, per-share earnings grew 23.3%, to $0.37 from $0.30. Revenue grew 17.0%, to $416.8 million from $356.2 million.

Much of Autodesk’s recent success is due to its decision to sell its products on a subscription basis. That gives it steadier revenue streams than selling its products as a one-time purchase. This move has also made it easier for Autodesk to phase out support for older versions of its programs, which gives users an incentive to upgrade every year or two.

The company also spends heavily on research to maintain its high market share. Research costs in the most recent quarter rose 40.4%, to $88.7 million (21.3% of revenue) from $63.2 million (17.7% of revenue) a year earlier. That’s almost 7% more than its earnings in the latest quarter. Autodesk’s balance sheet remains strong. It’s debt free, and has $377.5 million in cash (or $1.64 a share).

The stock has tripled for us since we named Autodesk our “Stock of the Year” for 2004. It now trades at 25.7 times its likely fiscal 2007 earnings of $1.48 a share. That’s reasonable in light of the company’s high research costs and market share. Its focus on expanding into overseas markets also adds to its prospects. But a minor earnings setback could lead to a sharp drop in the stock price.

Autodesk is a hold.