The Altium Limited (ASX: ALU) share price rose 2.27% on Monday to close at $25.26, continuing the positive trend that has seen it smash the S&P/ASX200 index for more than a decade.
Altium is a debt-free, global provider of software. The company's flagship product, Altium Designer, is used by engineers who design printed circuit boards (PCB's). Engineers benefit from a single interface which increases design success and reduces overall production times. The company aims to become the global leader in PCB design, whilst branching out into system designs.
Altium has over 37,000 subscribers across The Americas, Europe, emerging markets and the Asia Pacific region. These subscribers contribute 56% of Altium's total revenue and provide a steady stream of income for the company. This has allowed the company to continually invest in research and development (R&D), helping to improve the company's products and gain market share over time. Altium has spent greater than 15% of revenue on R&D in each of the last 5 years.
The company is targeting US$200 million in revenue by 2020, by increasing revenue at double-digit rates year-on-year. Management likes to set long term targets and wants to have 100,000 active subscribers by 2025. Altium has a strong track record of reaching the lofty goals that it sets. An example of this is its 2014 goal of reaching US$100 million in revenue in FY17. The company reported US$110.9 million in FY17.
Alongside shareholder friendly thinking and investment in R&D, Altium also aims to increase its dividend each year. For a high growth company, Altium currently has a reasonable unfranked dividend yield of 1.05%.
In FY18 Altium reported stellar results, with revenue growth of 26% (to US$140.2 million) and profit growth of 34% (to US$37.5 million). This was achieved alongside a record EBITDA margin of 32% and 10% growth in subscribers (to 37,917). The increase in the subscriber base took recurring revenue to 56%.
With such a strong record of success, Altium understandably trades at a premium to market multiples. Altium trades on a P/E ratio of 65x earnings compared the market's 16/17x earnings.
Foolish Takeaway
Altium reports its half-year results after the market closes on the 19th of February. Given that market expectations can result in big share price swings, I tend to wait for high P/E companies to release major results and make a decision based on the fundamentals. Altium has a great track record, profitable business model and a strong market position. I expect Altium to release another set of solid results and see it as a long term market beater.
