The Altium Limited (ASX: ALU) share price has grown by 1776% over the last five years. I think it still has a lot more growth left.
Altium is the creator of electronic PCB design software for engineers. It has a market capitalisation of around $1.1 billion dollars. Here's why I think that's just the beginning:
Fast growing market
The world is becoming increasingly technological at a fast rate. Every device is becoming connected in some way. This is the growth of the 'Internet of Things'.
All of the manufacturers will still be responsible for building the item but third-party providers can help with the technology.
Altium is one of the largest providers of this technology in the world so could be one of the biggest winners. Altium is expecting revenue to double over the next three years, which would be a great achievement if accomplished.
Large and diverse customer base
Altium has a large customer base that it generates revenue from. Some engineers are just one-person teams whilst others are some of the biggest businesses in the world.
Some of its customers include: Microsoft, NASA, John Deere, Toyota, HP, CSIRO, Bosch, Volkswagen and BMW.
It also helps that a lot of the customers are signing up to subscriptions which increases Altium's recurring revenue.
Increasing margins
One of the main signs I look for in a business is growing profit margins as the business gets bigger.
Altium will soon reveal its latest results but if we look back six months management disclosed that the earnings before interest, tax, depreciation and amortisation margin increased from 25% to 25.8%. The return on equity also increased from 7.3% to 7.5%.
Risks
The main risk to Altium is competitors. Technology changes very quickly and Altium will need to keep spending on research and development to ensure its products stay ahead of the pack.
Foolish takeaway
Altium is currently trading at 24x FY18's estimated earnings with an unfranked dividend yield of 2.43%. Although this isn't cheap I think Altium could be one of the fastest growing mid-cap stocks over the next few years.
