The Altium Limited (ASX: ALU) share price has grown by 29% over the past three months and I think there could a lot more growth to come.
Altium is one of the world's largest electronic PCB software providers. Here is my bull and bear case for Altium shares:
Bull case
Altium is part of one of the fastest growing industries in the world. All of our devices are increasingly complex and are becoming part of the 'Internet of Things'. Altium is at the forefront of this change with its software providing the foundation for software engineers to design the products of the future.
It has an impressive list of clients including Microsoft, John Deere, Toyota, NASA, BMW and many more. There is little chance of any of these organisations going bust. Altium has sticky revenue because it would take a lot of time, money and training to switch over to a competitor.
Altium's margins get better and better every year. In its full-year update for the year to 30 June 2017 it revealed its earnings before interest, tax, depreciation and amortisation (EBITDA) margin increased to 30% from 29.3% and the return on equity (ROE) increased from 18.2% to 20.7%.
Bear case
Altium's share price has risen so much there's a good chance that it has gotten beyond its intrinsic value. It's currently trading at 30x FY18's estimated earnings, which is a high price/earnings ratio compared to the market and Altium's historical average.
Technology shares are some of the most exciting on the stock exchange but also the ones most at risk. A competitor could easily come along and develop a better product or the end-device may need a different type of technology altogether. Anything could happen.
Is it a buy?
I think Altium is one of the most exciting shares on the ASX with solid financials and a growing dividend. I wouldn't be a buyer at today's price but I am always on the lookout to add more Altium shares to my holding. I'd heavily consider buying Altium shares if they went back to $8 again.
