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Why the Altium share price climbed 11.4% higher in November

The Altium Limited (ASX: ALU) share price climbed 11.40% in November in a strong rebound for the Aussie WAAAX stock.

What happened to the Altium share price in November?

Altium rebounded in November after sliding lower throughout September and October.

Altium was hammered as the US–China trade rhetoric ramped up and the tech company had a weak start to FY20. However, even after its share price declines, the Altium share price was still up more than 50% to start November

Altium is a subscription-based cloud software company used by engineering groups and is part of the prestigious “WAAAX” group of leading ASX tech stocks.

The group has enjoyed strong earnings throughout 2019, which has fuelled its share price higher. 

But November was where the Altium share price arrested the slump and kicked 11.40% higher. Despite this, there was no market sensitive news releases from the software group last month, which could move the share price. In fact, there hasn’t been a peep since its FY19 results release back in August.

The S&P/ASX 200 Index (INDEXASX: XJO) charged towards an all-time high in November and I think this momentum was a real factor behind the Altium share price surge.

Also helping the group’s cause was its declines in prior months, which may indicate it was oversold and this was simply a correction.

Altium trades at an eye-watering 62 times price-to-earnings (P/E) multiple, but that’s not uncommon amongst the WAAAX stocks.

Afterpay Touch Group Ltd (ASX: APT) doesn’t have a P/E multiple yet given its negative earnings, while Appen Ltd (ASX: APX) trades at 58.4x earnings.

WiseTech Global Ltd (ASX: WTC) investors are paying $156.21 per dollar of earnings following its recent share price declines.

Should you buy Altium stock in December?

While a little on the expensive side, the real question is whether Altium can reach its potential or not. If it can, then the current $37.07 per share could turn out to be a bargain.

But in the absence of a crystal ball, I think I’d be turning to cash flow positive companies with a solid earnings base.

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Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO. The Motley Fool Australia owns shares of Altium, Appen Ltd, and WiseTech Global. 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.

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