Is It Time To Pounce On Altium Limited (ASX:ALU) Shares?

With the sharemarket, as measured by the All Ordinaries Index (INDEXASX: XAO)(ASX: XAO), up 0.3% today, Altium Limited (ASX: ALU) shares have hit the skids this afternoon, with the share price down 2.1% shortly before closing.

The Internet of Things IOT

Altium is a little Aussie company that is a world leader in the design of software for printed circuit boards (PCB’s). At their half-year result in February they announced 24% revenue growth and a whopping 58% profit growth. Every electronic device contains a PCB and with the explosion in smart connected devices, Altium looks well placed to continue to grow revenues strongly.

Aspirational Target

In their February half-year result Altium’s management provided a new ‘aspirational’ target of revenue of $US500 million in 2025. They also said they are confident of achieving their 2020 target of $US200 million and committed to an EBITDA margin of 35% or better.

To date, Altium’s management has met or exceeded expectations, and at this stage, with industry tailwinds behind them, I have confidence in management achieving these targets. Altium has to be one of the best quality growth stocks on the ASX.

Buy, Hold or Sell

I consider Altium to be one of the highest quality businesses on the ASX, with no debt, net cash and a well-regarded management team. However, I consider the shares to be a Hold at present.

My stumbling block is Altium’s valuation. As a high-quality business, it deserves to trade at a premium to the ASX Industrials’ average valuation, but with the shares trading on a lofty multiple of almost 60 times forecast FY19 profits, I prefer to wait for a better entry price and will be keeping this one high on my watchlist.

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