The Altium Limited share price rises 2.92% to another all-time high

The Altium Limited (ASX: ALU) share price has risen another 2.92% today to another all-time high record.

The rise and rise of Altium is truly astonishing. Over the past month the share price has risen by 32.8%. Over the past three months it has grown by 60%. Over the past year it has gone up by 186%. Over the past five years it has gone up over 2,000%.

So, when does it stop?

The valuation now may be too high, in the short-term. Indeed, it’s currently trading at a very high price/earnings ratio. Historical p/e ratios don’t really account for future growth though.

In its latest result for the half-year to 31 December 2017, Altium grew its earnings per share (EPS) by 50% and grew the revenue by 30% to US$63.2 million.

However, management are predicting that annual revenue can reach US$200 million over the next couple of years and the earnings before interest, tax, depreciation and amortisation (EBITDA) margin is hopefully going to rise to 35%. The EBITDA margin in this latest result was 30% and the ‘underlying’ margin was 33.1% if one-off restructuring and acquisition costs are removed.

Plus, it’s not as though the company is going to stop operating in 2020. Management believe that Altium can keep growing beyond 2020 and become the clear number one player in the world.

Of course, there are risks too. The valuation is a big risk, the share price could drop 10% or 20% and still be called expensive. There are other competitors to Altium in the market, although Altium claims to be better on most (or all) fronts. A new type of technology could come along and potentially make Altium somewhat obsolete.

Foolish takeaway

Unless something drastic happens, Altium is on course for an excellent FY18 result and beyond. I’d only buy Altium at today’s price if I were comfortable to hold for at least two years because the share price could be quite volatile over that period. Technology stocks are some of the most volatile out of all of the industries.

If Altium looks expensive to you, then you should consider these top growth stocks instead.

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Motley Fool contributor Tristan Harrison owns shares of Altium. The Motley Fool Australia owns shares of Altium. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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