I may decide to buy some Altium Limited (ASX: ALU) shares after it releases its report later today when trading rules allow, and depending on what the share price does in reaction to the numbers released.
In my opinion the electronic PCB software business could be the best 'growth' share on the ASX, I am classifying 'growth' as a business growing profit at a fast double-digit pace year after year.
Ignoring market expectations, the full year result is likely to be a cracker after it grew revenue by 24% and net profit by 58% to $23.4 million in the half-year result. That momentum is likely to continue into the full year result.
There are plenty of things that I'm going to be looking for including Chinese revenue growth (which was 49% in the half-year), Octopart revenue growth (80% reported in the half-year) and continued growth of the earnings before interest, tax, depreciation and amortisation (EBITDA) margin – in FY18 the EBITDA margin was 32% and in HY19 it was 36.3%.
Commsec estimates derived from Bloomberg show that the Altium full year net profit for the year is estimated to be US$53 million, which would be an increase of just over 40%.
I think Altium ticks all of the boxes you could want from an ASX growth company. It has no debt with cash of US$58 million at December 2018, growing profit margins, a growing dividend, a global earnings base and steadily rising revenue thanks to technology improvements in the world like the Internet of Things.
The only thing that has been stopping me from buying more shares has been the valuation. It's hard to know what the right price to pay for such a fast-growing businesses is due to very low interest rates.
I used to think that around $20 would be a good top-up share price to buy Altium shares – and I did buy shares at around that price – but now the appropriate price could be above $25 or higher, depending on how much Altium has grown earnings.
Foolish takeaway
If the Altium share price were to fall over 10% in reaction then I'd be extremely interested in buying more shares. Even now it's valued at 38x FY21's estimated earnings. We'll see what happens, but I would like to buy more shares at the next opportunity.
