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Why Altium still looks like a buy

There’s a lot to like about Altium Limited (ASX: ALU). The company has been steadily growing revenue since FY 2012, dividend payments are up again and the Altium share price is ten times higher than it was five years ago, having more than doubled in the past year alone. And for those who have missed those solid returns, it seems it’s not too late to buy Altium shares.

As noted in an article published on this website yesterday, Altium announced revenue of US$140.2 million for FY 2018, up 26% on previous year. The company stated that its Board and Systems Division, which accounts for all of Altium’s printed circuit board (PCB) products excluding NEXUS, contributed US$108.8 million to that figure. As such, it may come as no surprise that Altium intends to focus on its strengths, namely its Board and Systems Division.

Altium has outlined plans of “dominating the PCB market” which the company is confident it will achieve “well before 2025” by securing 100,000 Altium Designer subscribers before that date. The tech company stated that is has a current subscription pool approaching 40,000. Altium also stated that it is well placed to hit its “2020 targets of US$200 million revenue and EBITDA margin of 35% or better”. And it seems likely that assertion will be taken very seriously by Altium’s competition.

Altium’s recent revenue growth has coincided with a slight decline in that of its major competitor Mentor, part of Siemens AG (ETR: SIE). Altium has stated that in FY 2018 it managed to secure about 22% of the market share of revenue in the PCB design software space, up from the 18% in the prior corresponding period. Further, Altium stated that is has been gradually increasing its share of the PCB cake over the past five years while Mentor’s slice has been slightly declining. Mentor remains the dominant player in the PCB space, securing more than 30% of the market share for FY 2018, but Altium believes things will change soon.

Altium has projected that it will eclipse Mentor in terms of market share by 2020 when Altium expects to achieve a figure greater than 30%. I wouldn’t be surprised if Altium hits those targets. The company is still among the best options for ASX investors and, in my mind, is a far stronger investment than other tech companies which have achieved similar year-on-year returns for investors, such as Redbubble Ltd (ASX: RBL).

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Motley Fool contributor Steve Holland has no position in any of the stocks mentioned. 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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