MENU

The Altium Limited (ASX:ALU) share price dropped 7%

The Altium Limited (ASX: ALU) share price has fallen by a heavy 7% today. No company-specific news was announced, nor was there any major broker announcements.

Today’s drop was most likely due to profit taking. The share price has been bouncing between $19 and $23 since it reported in February 2018.

The share price has grown by 143% over the past year and 1,337% over the past five years. It would be understandable if some people had decided now was the right time to exit.

Altium’s half-year report for the six months to 31 December 2017 was very impressive. It delivered revenue growth of 30%, earnings before interest, tax, depreciation and amortisation (EBITDA) growth of 51%, net profit after tax (NPAT) growth of 51% and earnings per share (EPS) growth of 50%.

Any company growing EPS by 50% is going to command a higher price/earnings ratio, but some shareholders may think that trading at 57x FY18’s estimated earnings is too high a valuation. a2 Milk Company Ltd (ASX: A2M) shareholders have seen what can happen when you don’t quite deliver on lofty expectations.

The good thing about Altium is that it is viewed as a global market leader in its industry. It arguably offers the best product, for a more attractive price than its competitors. It also has a sticky customer base because it would take a lot of training to move to another system.

I thought it was interesting that one of the Altium directors bought a few shares around mid $21 near the start of May.

Foolish takeaway

I’m a happy Altium shareholder, but I wouldn’t want to buy shares at the current price because it’s already my biggest holding. But, I’m pleased to continue holding because of its future growth prospects over the next five or so years.

Some long-term estimates put it trading at 35x FY20’s earnings, this still isn’t cheap but if it continues growing at high double digits to F20 and beyond then today’s price could seem good value in time.

However, for now if I were investing some cash today I'd rather put my money into one of these top growth stocks which are trading at better value.

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool's in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool's Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand - and how quickly the share prices of these companies moves - we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Tristan Harrison owns shares of Altium. The Motley Fool Australia owns shares of A2 Milk and 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.