Is the Altium Limited (ASX: ALU) share price a buy after falling by 15% over the past month.
Altium has been a phenomenal performer over the past five years. Even over the past year the Altium share price by 33%.
It's quite rare to find businesses that continue to perform exceptionally. When you do find one it's worth owning it. I think Altium is one of those businesses. It can be a mistake to not invest in a business despite a strong rise. One of Fool Co-founder David Gardner's key lessons is to buy more of a business if it does really well.
Altium is now a multi-billion dollar company, but it's still got a lot of growth potential left thanks to the rapidly-increasing technological nature of the world. Management believe the company can strongly grow its revenue to at least 2025 and presumably beyond. The goal is US$500 million revenue by 2025 with 100,000 Altium Designer seats.
Not only has the Altium share price drifted backwards recently, but US and Australian interest rates have been reduced – so theoretically Altium shares should be worth more than what we've seen recently and it's a lot better value than before.
The ongoing trade war between the US and China is unfortunate and could hinder growth, particularly because 'China' is generating a lot of growth for Altium.
Altium's earnings before interest, tax, depreciation and amortisation (EBITDA) margin growth has been impressive. It wasn't so long ago that the EBITDA margin was at 30% and now it's above 35%. If the company can hit a 40% EBITDA margin in the new few years it will be a very impressive profit machine.
It's certainly true that Altium looks expensive compared to blue chips like Wesfarmers Ltd (ASX: WES) and Commonwealth Bank of Australia (ASX: CBA), but compared to tech peers like WiseTech Global Ltd (ASX: WTC) and Pro Medicus Limited (ASX: PME) I think it looks nicely priced.
Foolish takeaway
Altium is trading at 37x FY21's estimated earnings. In this low interest environment I think the electronic PCB software company looks pretty good value.
