3 Reasons Why Altium (ASX:ALU) Is A Great ASX Growth Share

I think Altium (ASX: ALU) is one of the best growth shares on the ASX, I will outline three reasons why I believe that in this article.

Altium is an Australian multinational software business that was founded in 1985. It now has offices globally in places like San Diego, New York, Boston, Munich, Shanghai, Tokyo and Sydney. Its software focuses on electronics design systems for 3D PCB design and embedded system development. Its services include Altium Designer, Altium Vault, CircuitStudio, CircuitMaker, TASKING and Octopart.

3 Reasons Why I Think Altium Is A Great Growth Share

Exposure To Growth

Altium might be one of the best ways on the ASX to get exposure to the growing technology use in the world. The ‘Internet of Things’ so no longer a dream but it’s becoming reality for more devices and services these days.

You can see how Altium is aligned with technology growth with its client base of customers like Qualcomm, Broadcom, Tesla, Space X, Amazon, Google, Apple, Microsoft, Toyota, John Deere and so on.

Focus On Returns

Altium’s management is very focused on returns for both the company and shareholders. I like that Altium is very considered about the projects it invests in and the acquisitions it makes which have big growth prospects like Octopart and Altium 365.

A focus on company returns has allowed Altium’s EBITDA (click here to learn what EBIT means) margin to increase to above 35%, which means each revenue dollar makes more profit for Altium.

Altium is also steadily growing its dividend for shareholders so that investors can share in the growth of the company with Altium also retaining some profit for re-investing for more growth.

Excellent Cash Flow Generation

Ultimately, we invest in businesses for the cash profit they will generate for us. In FY19 Altium’s profit grew by 41% to US$52.9 million, operating cash flow increased by 42% to US$69.1 million and free cash flow jumped by 42.4% to US$63.95 million.

This is impressive and shows all of the profit is coming back to shareholders. It’s also even more attractive considering Altium doesn’t have any debt.

Summary

According to Commsec, Altium is valued at 37 times the estimated earnings for the 2021 financial year. This isn’t exactly cheap, but I think it looks good comparable value compared to other tech shares like WiseTech Global (ASX: WTC) and Altium is producing excellent free cash flow for investors.

Altium and the growth shares in the free report below could be ones worth keeping an eye on.

At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.

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