It’s been a rollercoaster ride for shareholders of software company Altium Limited (ASX: ALU) over the past few months.
In June, software business Autodesk made an offer for Altium, valuing its shares at $38.50, however, the offer was rejected by the Altium board.
Earlier this week, Altium released its FY21 results which sent shares down by around 10% on the day.
Today, Altium’s shares are trading at $31.25 each, the same level they’ve been at over the past couple of years.
To read more about Altium’s FY21 results, you can read my colleague, Lachlan Burr-Jensen’s article: Altium (ASX:ALU) share price sinks despite rosy FY22 outlook.
My takeaway’s from Altium’s result
I mirror the sentiment from Lachlan’s view on Altium’s result. It wasn’t a bad result, but it certainly wasn’t too strong either.
I think the market is expecting a lot from Altium, evidenced by its shares trading on around 17x forward sales.
FY21 revenue was up just 6% on FY20. Management has now upgraded guidance and is expecting around 16-20% revenue growth for FY22.
Perhaps slightly concerning was management flagging that it’s pushing back its 2025 targets one year to 2026. Part of this aspirational plan is to achieve $500 million in annual revenue, which it would need to grow its top line at a compound annual growth rate (CAGR) of around 22% to achieve.
In addition to pushing the target back a year, it removed its EBITDA margin goal of between 39-44% by 2025.
If it keeps having to push back targets or offering discounts on subscriptions, it could be an indication that it’s losing market share to a competitor and doesn’t have a high amount of pricing power.
What to do with Altium shares?
To me, Altium is starting to look slightly asymmetric in regards to the potential outcomes.
If I flip the coin and I win, the upside seems limited. Why? Because the market seems to have priced in the $500 million target with these ambitious growth assumptions.
If I lose the coin toss, the downside could potentially exceed the upside potential.
For the moment, I’d want to see some more evidence of execution before I’d be buying at these levels.
