The Altium Limited (ASX: ALU) share price has fallen 4% so far today to under $20.50. Is it a buy?
It's been a rollercoaster of a few months for Altium since reporting season. It almost went to $30 right after it reported, but it's now down 30% since then.
As a refresher, Altium is one of the world's leading electronic PCB software businesses.
In its FY18 result Altium reported a number of impressive figures including revenue growth of 26%, earnings before interest, tax, depreciation and amortisation (EBITDA) growth of 35% and earnings per share (EPS) growth of 33%.
Many experienced investors said that Altium, Appen Ltd (ASX: APX), WiseTech Global Ltd (ASX: WTC) and Xero Limited (ASX: XRO) were overpriced. They are certainly better value now.
The ASX is a small stock exchange with few exciting growth options. Yet, Australia has large amounts of money seeking a home. So it's unsurprising that a lot of money drifted towards the few quality tech names on the ASX. They are good businesses, but they were far too expensive.
Rising bond rates, due to rising US Fed interest rates, have made the US share market falter and the Australian market is following it down.
I've followed Altium for a long time and I still own it in my portfolio. However, I'm very keen to add more at the right price.
What's the right price? That's the question. Over the past few months I have said I'd be very interested in Altium at a price under $20. Well, it's nearly there.
Altium has plans to become the single global leader in electronic ECB software – similar to how Microsoft became the main office software choice.
The company has delivered impressively on its long-term aims so far. Who's to say in seven or so years it won't be the clear market leader? If Altium hits 100,000 Altium Designer subscribers before 2025 it will likely be the dominant player.
Foolish takeaway
It's a catch-22. The long-term potential opportunity is clear, but the rising interest rates could hurt Altium's share price in the short to medium-term significantly. It's still fairly expensive trading at around 39x FY19's estimated earnings.
However, I feel it's getting close to where I'd be happy to buy a small parcel for the long-term and accumulate more on further price weakness.
