The Altium Limited (ASX: ALU) share price has been volatile since COVID-19 hit. Is it an opportunity?
In May 2021 the Altium share price fell to $24. After that it rose to $38 after the takeover bid(s). It dropped again after rejecting the offers. It fell to $30 after reporting. But then it rose 20% to $30. What a rollercoaster!
The market isn’t normally this volatile for an individual share, apart from something like Afterpay Ltd (ASX: APT).
What does Altium do?
The company is involved in a few different areas of electronic design.
A key service is software for electronic PCB design. Altium Designer is the flagship offering here. But it also has other services, such as Octopart which is a search engine for electronic parts.
Why was the takeover offer rejected?
Altium said that the proposal “significantly undervalued” Altium’s prospects.
Management said that Altium has a unique position in the electronics ecosystem. Its strong track record of setting ambitious long-term goals and achieving them gave the board confidence in its ability to pursue its transformative strategy for the electronics industry and achieve its 2025 financial goals.
Having changed to the cloud, the leadership believes the company is now well positioned to pursue market dominance and industry transformation. The adoption of Altium’s cloud platform is transforming Altium’s business model from maintenance-based subscription to a capability-based software as a service (SaaS) subscription.
Was the FY21 result good?
The electronic PCB company reported a decent set of numbers, given the circumstances of COVID-19 and the disruption.
Excluding the sold TASKING business, revenue rose 6% to US$180.2 million, though EBITDA (EBITDA explained) fell 3% to US$60 million and profit before tax dropped 7% to US$47.7 million. However, profit after tax increased 79% to US$35.3 million after a one-off taxation change.
Octopart was the star performer with revenue growth of 42% to US$27 million.
In FY22, Altium is expecting to generate US$209 million to US$217 million (being 16% to 20% growth). The underlying EBITDA margin is projected to be 34% to 36%. The annual recurring revenue (ARR) growth is expected to be 23% to 27%.
Is the Altium share price an opportunity?
It’s good to see that the business is expecting a return to solid revenue growth with expectations of EBITDA margin growth as well. If Altium is able to transform the industry and be a clear worldwide leader of electronic PCB software, then it could generate a lot more profit in the future.
Using the CommSec projection, Altium shares are valued at 56 times the estimated earnings for the 2023 financial year. It’s certainly not cheap. But if it can achieve what it aims to this decade, then it could well be a good idea at this level. But I’d prefer a lower price.
At the moment I’ve got my eyes on other ASX growth shares for the long-term.
