Altium (ASX: ALU) has announced COVID-19 troubles to investors, is the share price a buy?
What is Altium?
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.
What did Altium announce today?
The company had previously in early April said it was still doing quite well with a growing cash balance on its balance sheet.
Today the company said it’s anticipating some headwinds because of the longer restrictions and lock downs which is affecting economies in the US and Western Europe.
Altium is warning that the final quarter is likely to hurt performance in May and June.
Engineer clients are working on prototype designs and the electronics industry is holding up “relatively” well, the cash preservation priorities of small and medium businesses are likely to affect the timing of closing sales in May and particularly June, which are historically the strongest months months of the year.
What is Altium doing to address this?
Altium CEO Aram Mirkazemi said: “We have launched attractive pricing and extended payment terms to drive volume in challenging market conditions. We also have accelerated the introduction of our new digital online sales capability, as part of the execution of our man-out-of-the-loop strategy to bolster our transactional sales capacity. Altium’s digital sales model will take some time to fully ramp up but will be important to support our climb to the 100,00 subscriber target by 2025.”
The company is working hard to roll out its new cloud platform Altium 365. It won’t be a big revenue driver, but it’s part of the long term strategy and will strengthen recurring revenue.
Altium currently has a cash balance of US$77 million. However, the US$200 million revenue goal for the year seems “a low probability”.
Is the Altium share price a buy?
It’s quite clear that most businesses, including Altium, are being affected during this period. Its strong balance sheet will mean it’s well positioned to see this through, but investors are obviously going to be disappointed about this news. Lower prices and lower sales volume is tough for the financials.
If the share price were to drop back close to $25 (or lower) again, I’d say that price could be too good to miss for the long term growth potential.
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Disclosure: at the time of publishing, Jaz owns shares of Altium, but that could change at any time.