In morning trade the Altium Limited (ASX: ALU) share price has been amongst the best performers on the Australian share market.
At the time of writing the printed circuit board (PCB) design software company's shares are up over 3.5% to $21.42.
Why is the Altium share price pushing higher today?
As well as getting a boost from strong buying in the information technology sector, Altium was given a boost after Goldman Sachs named it as a share to buy.
According to the note, the broker has initiated coverage on Altium with a buy rating and $28.50 price target. This price target implies potential upside of almost 38% over the next 12 months based on its last close price.
Goldman believes Altium is an attractive investment for three main reasons.
The first is that it expects Altium's PCB market share gains to continue. The broker expects its innovative new product launches, Altium 365 and Altium Designer 19, to accelerate market share gains for Altium's core PCB business in the US$700 million PCB industry.
The second is the company's expanding total addressable market. Goldman believes its Octopart business, which was acquired in 2015, provides Altium with an expanding total addressable market. This is due to its increasing exposure to a massive EDM market.
The broker estimates that Octopart's total addressable market could be as much as US$50 billion, which gives it confidence to believe that recent 50%+ revenue growth trends can continue.
The third reason Goldman thinks Altium is a buy is its attractive valuation. The broker has forecast Altium growing its earnings before interest and tax by a compound annual growth rate of +34% over the next three years.
At "25x FY20 EV/EBIT, we believe ALU screens as attractive relative to ANZ tech peers trading on 31x delivering 3 year EBIT CAGR of 30%."
Should you invest?
I agree with Goldman Sachs on Altium and think it would be a great investment alongside fellow tech stars Appen Ltd (ASX: APX) and Xero Limited (ASX: XRO).
