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

Altium share price

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.

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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.

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