The Altium Limited (ASX: ALU) share price has risen by another 2.8% so far today meaning it has reached an all-time high of $24.54.
Altium has performed very well over the past year as it has gone from $9 to today’s $24.50.
A lot of that strong price appreciation has been down to strong business growth. In the half-year result it revealed 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%.
Altium’s profit growth is improving as it manages to increase its profit margins, plus Altium has a sticky revenue base because of how difficult it would be to switch to another software provider.
However, the recent gains are very likely due to the weakening Australian Dollar compared to the United States Dollar. It has dropped from 76 cents to 74 cents and there’s a good chance that it will drop lower because of how attractive the US currency looks with a rising interest rate and also a strong economy.
Aussie investors will benefit as the business is worth more in Australian Dollars, even if it earns the same amount in American dollars.
However, I think it’s now worth considering whether Altium is actually good value at the current price. It’s trading at 64x FY18’s estimated earnings. This is too high to warrant a buy in my opinion.
Altium is growing at a very good rate and it could continue to grow nicely over the next decade due to the ‘Internet of Things’ effect.
However, rising interest rates could hurt the valuations of businesses with high price/earnings ratios. Altium could also be punished if it doesn’t meet market’s expectations.
For now, I’d say that one of these top shares would be a better bet for growth over the next year or two.
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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.