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Altium Limited (ASX:ALU) share price finishes up 8%

The Altium Limited (ASX: ALU) share price finished up 8.2%. It’s a strong recovery, thanks to the US Fed’s Jerome Powell suggesting that US interest rates were closer to the neutral rate than had previously been thought.

Followers of US politics would have seen how President Trump has been hounding the Fed to keep rates lower because it could hamper US growth. Or at least hurt the US stock market.

Interest rates act like gravity on share prices. The higher the interest rate the lower the value shares should trade at. If the interest rate is now going to be a bit lower, valuations seemingly should be a little bit higher.

Overnight we saw US tech share prices rise. The Apple share price rose nearly 4%, Amazon’s share price went up 6%, the Facebook share price grew 1.3%, the share price of Alphabet climbed 3.75% and the Microsoft share price went up 3.7%.

Altium is one of the FAANG proxies on the ASX, so it’s no wonder that it got a big boost today. Growth shares are heavily affected by rising interest rates because you have to use a larger discount rate to get to back to today’s value.

Out of all the tech shares on the ASX, I think Altium is the most attractive one. It has a diverse list of high-quality clients like some of the FAANG businesses, many of the car giants and so on. It is exposed to a very high-growth industry with the Internet of Things, which will likely keep growing regardless of a potential economic downturn. It has excellent, growing profit margins. It has zero debt. It’s committed to reward shareholders with growing dividends. Lots to like.

Foolish takeaway

But, no business is a buy at any price. Altium is now trading at around 44x FY19’s estimated earnings. For me, this price is too high to consider buying at today’s price.

In 10 years Altium could very well prove to be a great buy at this price, but I think there’s a decent chance continued volatility could bring it back to a more acceptable buying price at some point in the next six to twelve months.

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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