Should you buy Altium Limited?

This is one software developer that appears to have a very healthy future

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Altium Limited (ASX: ALU) makes and sells software that is used by many well-known global companies to design electronic products, especially printed circuit boards, and spans sectors ranging from aerospace & defence, life sciences, automotive, consumer electronics, semiconductors, computers to universities, research centres and mobile devices.

The company’s list of clients includes a virtual smorgasbord of well-known brands, including Boeing, Microsoft, Texas Instruments, Resmed Inc (ASX: RMD), Audi, BMW, Bose, Honeywell and Siemens.

With the rapid rise of the ‘the internet of everything’ where machines are enabled to communicate with each other, more and more of them will require sophisticated electronics – and circuit boards.

That should mean strong demand for Altium’s products over the long term, potentially generating strong growth in sales and profits. Additionally, close to half of Altium’s revenues comes from subscription sales.

Over the past five years, Altium has grown sales strongly, particularly in its two most important regions, Americas and Europe. Combined, the two regions contribute 77% of total group sales, with greater China representing 15% and Asia Pacific the remaining 9%.

With no debt, and US$19.3 million in cash and strong cash flows, Altium is not at risk of falling foul of its bankers. Showing how the company has strong operating leverage, an 11% increase in revenues in the last half year period, saw underlying net profit rise 45%.

After all, once the software has been developed and initial sales cover the annual ‘maintenance’ costs, revenues over and above that pretty much fall through to the bottom line.

If Altium is not to your fancy, you may want to have a closer look at some other Australian software developers, including Infomedia Limited (ASX: IFM), Reckon Ltd (ASX: RKN), Hansen Technologies (ASX: HSN) or eServGlobal Ltd (ASX: ESV).

Foolish takeaway

With revenues and earnings growing steadily, now could be the perfect time to take a closer look at Altium.

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Motley Fool writer/analyst Mike King owns shares in Resmed. You can follow Mike on Twitter @TMFKinga

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