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Why I’d still buy Altium shares at this share price

I think that the Altium Limited (ASX: ALU) share price is still a buy at this price even though it’s continuing to rise.

At the time of writing it’s up another 1% and it has gone up 24% since 23 March 2020. That’s a strong recovery from one of the world’s leading electronic PCB software businesses.

What about the recent update?

I think it was prudent of Altium’s management to withdraw its FY20 guidance. Previous guidance from most businesses doesn’t mean much in this environment. There are only a handful of businesses that have been able to maintain (or increase) their guidance because of the coronavirus.

Whilst the update was light on numbers, Altium did say that its cash reserves have continued to grow and “are expected to remain strong”. The company is geared to work well in a digital environment and the electronic design industry is being relatively robust.

Altium said it’s continuing to close sales and its pipeline is “looking solid at this point”.  

As I’ve been saying over the past few weeks, and Altium CEO Aram Mirkazemi also said in the update, Altium 365 is particularly relevant in these circumstances as it allows engineers to work from anywhere and connect with anyone.

Altium is also accelerating the rollout of its ‘online/high volume’ selling approach which will help sales in the fourth quarter of FY20 and beyond.

There has been a slowdown in manufacturing and supply chain, which has affected engineers. But those engineers, according to Altium, are using the excess time and capacity to work on prototype designs.

Altium is making the most of this difficult period. 

Why Altium is still a buy in my opinion

Firstly, the interest rate is now a lot lower. This should increase the valuation of assets like shares. It’s particularly good for profitable businesses with long growth runways like Altium.

The Altium share price is still down by 28.5% since its report which alluded to the fact that FY20 would be disrupted by the coronavirus outbreak. A lower price is obviously better for buying cheaper shares. 

It is comforting to hear that Altium’s balance sheet is getting even stronger during this period, which means it’s even better placed to prosper in this period even if conditions get tough.

Altium is sticking with its long-term goal of 100,000 of Altium Designer subscribers which will see it become the clear market leader by 2025. The long-term outlook remains strong. It’s trading at 35x FY22’s estimated earnings.

I think this period is a good buying opportunity for a great business, though there could more more falls this year.

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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.