The Altium Limited (ASX:ALU) share price fell 5%, making it one of the worst performers in the ASX tech sector, and indeed the ASX 200.
Altium is an electronic PCB software business that helps engineers design the machines and devices of the future. It’s also a member of the ASX tech acronym ‘WAAAX’. Most of its peers of the group didn’t do well today either.
Somehow, the Afterpay Touch Group Ltd (ASX: APT) share price edged slightly higher today, finishing up 0.3%.
In a somewhat odd trend, the movements of the US tech shares can heavily affect the valuations of the WAAAX shares on a day-to-day basis, even though they are completely different businesses.
In the US, Tuesday’s trading saw the Facebook share price drop 2.2%, the Amazon share price declined 5.9%, the Apple share price fell 4.4%, the Alphabet (Google) share price went down 4.8% and the Microsoft share price felt a negative hit to the tune of 3.2%.
I suppose the FAANG stocks do actually have a fair bit of relevance to Altium and Appen as they are customers of the ASX tech duo.
Altium suffered the biggest hit today of the group, but it could actually be trading at the most reasonable valuation compared to its peers. According to some estimates, it’s trading at around 43x FY19’s earnings. Compared to WiseTech’s valuation of 89x FY19’s estimated earnings it does look a lot fairer.
Will today’s buyers of Altium be able to justify the price they paid compared to Altium’s progress in two years’ time or a decade? That could very well be the case if Altium’s market domination plans come to fruition. The US Fool’s David Gardner does advocate for going for expensive shares if it looks like it has a great future.
We can’t control what happens to our shares once we buy them, the only thing we can do is decide what entry price we’re happy to pay. A price/earnings ratio of above 40 is probably too much for me to justify, so Altium would have to fall almost 10% before I’d start to consider topping up my holding.
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Motley Fool contributor Tristan Harrison owns shares of Altium. The Motley Fool Australia owns shares of AFTERPAY T FPO, Altium, Appen Ltd, WiseTech Global, and Xero. 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.