Why I think the Altium share price is a buy right now

I think the Altium Limited (ASX:ALU) share price is a buy right now after the coronavirus share market selloff we've seen.

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I think the Altium Limited (ASX: ALU) share price is a buy right now after the coronavirus share market selloff we've seen.

The S&P/ASX 200 Index (ASX: XJO) has fallen 32.2% since 21 February 2020. In that same time the Altium share price has dropped 24.5% and since 17 February 2020 it has fallen 39%.

The additional fall was due to Altium's result where the electronic PCB software business said it was likely to land at the lower end of its full year guidance range with the impact of the coronavirus in China as well as the impact to Octopart.

I think it's fair to say that most ASX businesses have been affected by COVID-19 and a great many of them have withdrawn their FY20 guidance. Altium is likely to see a hit in the rest of FY20 too with how much the rest of the world is now being impacted by the spread of the coronavirus.

But there are three reasons why I think the Altium share price is a buy today beyond just the share price decline:

Excellent balance sheet

The electronic PCB software business is one of the best placed businesses on the ASX to get through this in my opinion.

A good balance sheet is an integral part of getting through the outbreak as well as remaining in good financial shape.

How well positioned is Altium's balance sheet? At 31 December 2019 Altium had US$80.7 million of cash. It had $0 debt. It's not exactly as big as Apple's cash balance, but Altium is in a very healthy position.

Debt is one of the things that can cause a business to become unstuck during this.

Altium 365

To quote from Altium, Altium 365 is cloud platform for electronics design and real-time collaboration for any device that can browse the internet.

A cloud service is very handy in this period, as it will allow engineers to keep working from home if that's what their plan is. That would mean Altium can continue collecting revenue. 

It was only recently released, so it's perfectly timed to help Altium through this in the short-term.

Cashflow

It's the businesses with good cashflow, as well as a good balance sheet, that will continue to do well during this. Over the past few years Altium has generated excellent cashflow. In the FY20 half-year result it created US$20.8 million of operating cashflow.

The coronavirus is causing terrible human impacts and it's hitting most areas of the economy hard. But as bad as it is in the short-term, the world will get through this. Businesses will want to continue to develop future machines, vehicles and items using Altium's software.

Foolish takeaway

Altium is trading at 29x FY22's estimated earnings with a dividend yield of 1.5%. I think it looks like a great long-term buy after falling heavily during this period. Don't forget that Australian interest rates are at record lows, which makes today's share price look even more attractive.

Motley Fool contributor Tristan Harrison owns shares of Altium. The Motley Fool Australia owns shares of Altium. 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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