The Motley Fool

Is the Altium share price in the buy zone?

The Altium Limited (ASX: ALU) share price has had a another solid day on top of a solid week. Altium shares opened this morning at $37.16 and have since climbed to $37.52 at the time of writing (a rise of more than 2%). Altium has now booked a year to date gain of 74%, cementing its place as a tech darling of the ASX. But why have Altium shares lit up this year? And is Altium still a buy today? Lets probe a little further.

A refresher on Altium

Altium is one of the A’s in WAAAX – the collective name of the most popular hot tech shares on the ASX. The company specialises in software that assists engineers to design printed circuit boards (basically every electronic product out there has a printed circuit board that needs to be designed individually). Altium’s flagship product is Altium Design – a cloud-based design program that is offered on a subscription, software-as-a-service (SaaS) basis.

Why has Altium been raising the roof in 2019?

For a few reasons. Companies with SaaS business models are all the rage: after seeing how the ‘original’ SaaS company – Netflix – has performed over the past decade, many companies such as Adobe and Microsoft have cottoned on to how lucrative selling an ongoing subscription rather than a stand-alone product is. Altium has jumped on this bandwagon with its software and has enjoyed these benefits too. In its 2019 financial year results, the company reported that subscription revenue was up 13% to US$58.5 million, helping Altium post a 23% rise in total revenues for the year, which came in at US$171.8 million.

By 2025, Altium hopes to have reached the 100,000 subscriber level, at which point the company predicts will bring in US$500 million in revenue (about triple 2019’s number). With its past success, lucrative business model and huge growth runway, we can see why Altium shares have been lighting up the market this year.

Is Altium a buy today? A Foolish takeaway

With Altium’s current market capitalisation of $4.92 billion, I would say that the company is expensive, but not overpriced if it can bring home its 2025 goals. The company operates in an area that I think will be growing for the foreseeable future at least, and if it can keep on top of its competition, the sky is the limit.

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Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Altium. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

NEW. Five Cheap and Good Stocks to Buy in 2019…

Our Motley Fool experts have just released a brand new FREE report, detailing 5 dirt cheap shares that you can buy today.

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