There aren't too many shares on the ASX that have done better than Altium Limited (ASX: ALU) over the last year, three years, five years or ten years.
Even so, I think Altium will beat the market from the current price due to the following reasons:
Growth industry
The world is becoming an increasingly technological place. Smartphones were one thing but soon nearly every device will be connected inside the home and outside. 'The Internet of Things' movement is only going to accelerate from here.
Fridges, cars, TVs and everything else will connect with each other. Altium provides electronic PCB software for the businesses that are creating these new products.
Diverse client base
Altium doesn't earn its revenue from each device owner, its clients are the manufacturers and developers.
Some of its main clients include NASA, John Deere, Cochlear Limited (ASX: COH), BMW, Boeing, Philips, HP, Dolby Digital and CSIRO.
Sticky revenue
One of the pleasing things about 'software as a service' companies is that the annual subscription model creates a very good source of regular income.
Altium has particularly 'sticky' revenue because it takes time to train to use this type of software. It would take time and money to move to another provider.
Increasing margins
The more Altium grows the more profitable it becomes. When margins increase it means that of each dollar it earns, more of that dollar falls to the bottom line. These businesses are compounding machines and well worth the investment.
In FY17 the earnings before interest, tax, depreciation and amortisation margin grew from 29.3% to 30% and the return on equity grew from 18.2% to 20.7%.
Foolish takeaway
I think Altium is one of the most exciting businesses on the ASX. It's currently trading at 35x FY18's estimated earnings, which is quite expensive. However, if management pull off the doubling of revenue that's projected, today's price could actually be good value.
