Down 8%: Is the Altium Limited (ASX:ALU) share price a buy?

The Altium Limited (ASX: ALU) share price is currently down 8% to $27.36, giving up some of the gains it has made this week. However, since the start of the week it’s still up 27%.

As a reminder, this sharp price increase occurred due to the electronic PCB company reporting its full-year profit result for the year to 30 June 2018.

Revenue grew by 26% to US$140 million, earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 35% to US$44.9 million, net profit after tax (NPAT) grew by 34% to US$37.5 million and earnings per share (EPS) grew by 33% to 28.86 cents.

Unlike some other tech rockets this year, Altium’s profit is all real cash. Operating cash flow grew by 35% to US$48.5 million and cash on the balance sheet increased by 18% to US$52.5 million.

A key part of Altium’s rise is the growing profit margin. That means that each additional dollar of revenue is more profitable than the year before. The EBITDA margin increased to 32% from 30% in FY18. The company is aiming for a 35% EBITDA margin.

Altium is getting increasingly expensive. Its p/e ratio is now well in excess of 60, which is very pricey considering EPS grew by 33%.

It’s quite hard to accurately value what pioneering technology companies should be valued at using traditional metrics.

Investors are clearly excited about the prospect of Altium going full-speed ahead for achieving market dominance in the coming years. Management believe there’s an opportunity to turn the business into the main choice across the world, like Microsoft for office products.

The company is targeting 100,000 Altium Designer subscribers before 2025 for market dominance. It’s also targeting US$200 million revenue by 2020.

It’s times like this that makes me think of US Fool founder David Gardner. He has had a knack for identifying world-changers and picking huge investment returns. He says that when something seems expensive to most people, that’s something that makes him perk up.

Altium could be a game-changing business, even at this price. Of course it would be nice to buy it under $20, but it isn’t. In 10 years time Altium could be a much bigger business. Interest rates may dampen the valuation a little along the way, but I’m going to slowly accumulate more shares over the next couple of years because of where Altium will be in a decade’s time.

Another growth share that’s worth looking at is this top share that’s growing in Asia.

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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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