Altium Limited (ASX: ALU) is an electronic PCB software design business and it's one of my favourite shares on the ASX.
It has been a very strong performer for shareholders for many years. Indeed, over the past year alone its share price has increased by 67%.
However, I believe that Altium could continue to outperform for the following reasons:
Winning market share
One of Altium's main aims over the next decade is to become the clear leader in the electronic PCB software market. To do so it is aiming to reach 100,000 Altium Designer subscribers before 2025 and has an aspirational revenue goal of $500 million in 2025.
Altium is predicting it will be the market leader in terms of revenue in 2020 and it seems to be on track to do so with it supposedly winning around 80% of new business.
Once Altium has won a customer it can be very expensive for the client to shift to another piece of software due to all of the training costs involved.
High profit margin
Altium had a high earnings before interest, tax, depreciation and amortisation (EBITDA) margin of 36.3% at the most recent half-year result. The margin has been steadily improving over the years and this has allowed the net profit after tax (NPAT) to grow much faster.
What's most attractive about the profit margin is that Altium has said the margin could keep going up to 40% or more over the coming years. That's the power of a software business with little incremental costs.
Excellent balance sheet
Altium has been strongly committed to having no debt on its balance sheet and continues to have an excellent cash position. At 31 December 2018 it had US$58 million of cash which it could put towards further acquisitions in the coming years, which would boost Altium's growth profile.
Foolish takeaway
Of course, one of Altium's competitors may yet come back with a better offering for its clients, so achieving market dominance may not be that easy. Altium's valuation is also pretty rich at 48x FY20's estimated earnings. However, it may be able to continue to beat market expectations for the longer-term.
