The Altium Limited (ASX: ALU) share price has stumbled in the last two weeks. It's now down more than 11% since hitting its high on March 22 and is currently trading at $31.94.
Altium had a killer HY earnings call that sent its stock price soaring in February. Since the beginning of the year, the tech company has awarded investors with a sweet 47% return.
Here's why I'm leaning towards a buy this week.
Why is the Altium share price in the buy zone?
Altium Limited is the creator of a design software for printed circuit boards (PCBs). Its flagship product is called Altium Designer, where engineers have a single interface to monitor the end-to-end PCB design process. This software has been revolutionary in realising electronic products, boosting productivity and production for its almost 40,000 subscribers.
The market for Internet-of-Things (IoT) technology is expected to double to $520 billion by 2021. To power and mechanically support electronics which utilise this technology, PCBs are fundamental. The industry itself is still nascent, highlighting that this is only the beginning of Altium's growth trajectory.
It is clear Altium has a defensible value proposition that will capitalise on future tech trends, but how is its underlying business metrics?
In its HY earnings call, Altium showed an 11% growth in cash on hand to US$58 million since FY 2018. The company is also debt-free, meaning it can afford to spend on scaling. Business efforts for the year will be focussed on furthering market penetration in the US and China. I have no doubt that the company will hit its aspirational 100,000 subscribers by 2025.
Foolish Takeaway
In its HY report, Altium beat analyst expectations with growth rates of 26% in revenue to US$78 million and 58% in net profit after tax to US$23.4 million. This was a result of strong results in China, comprising 24% of HY revenue.
Altium's management team stated it is committed to ensuring that the company retains a 35% EBITDA margin, above the 26.16% average in the software industry over 2018. They shared aspirational growth targets to achieve $US200 million revenue by 2020 and $500 million by 2025.
Altium is not cheap. It sports an 88.73x P/E multiple, which is astonishingly high in comparison to the ASX average of 16.3x and 35.2x in the software industry. This is unsurprising, given its net cash position and strong earnings growth to date.
As Altium consistently beats market expectation, I have confidence in the management team and growth strategies in place today. Unlike some of its WAAAX peers – like Afterpay Touch Group Ltd (ASX: APT) – Altium is profitable.
This is why I'd be buying Altium shares in the dip.
