The Altium Limited (ASX: ALU) share price dropped sharply by more than 40% during the initial phase of the coronavirus pandemic from mid-February to mid-March. Since then its share price has regained just over half of those losses.
Altium has continued to perform reasonably well from a business perspective throughout the crisis, despite some short-term challenges.
Is the Altium share price a buy right now?
What is compelling about Altium's business model?
Altium designs software which enables engineers to produce printed circuit boards for a broad range of electronic devices. These include everything from computers to cars and a growing range of devices that make up the 'Internet of Things'.
Altium's software tightly integrates into its customers' systems and processes. This results in high customer switching costs. It also helps to lift Altium's pricing power and recurring subscription revenue. In addition, Altium benefits from high product margins and operating leverage.
I feel that all of these factors make Altium an attractive share to invest in.
How has Altium performed recently?
In a May update, Altium informed the market that it may not reach its aspirational goal of US$200 million in total revenue during FY 2020. Altium still anticipates headwinds up to the end of June. Ongoing lockdown restrictions due to COVID-19 are having an impact in particular in the United States and Western Europe.
The company has also recently experienced challenges to sales, particularly at the smaller end of its target market. This includes signs of distress amongst some start-ups and other smaller customers.
However, on a positive note, the wider electronics industry appears to be holding up relatively well during the pandemic. Engineers have been utilising the excess time and capacity due to the slowdown in manufacturing to become more active in prototype designs. This trend is definitely benefiting Altium.
Altium continues to accelerate the rollout of its new Altium 365 cloud platform. It also reported that it remains in a strong financial position with a current cash balance in excess of US$77 million.
Is the Altium share price in the buy zone right now?
With Altium's share price down significantly from pre-coronavirus levels, I think that this provides investors with a reasonably good buying opportunity. I believe that any further challenges that Altium may face are well factored into its current share price. In fact, I feel that the market may have over-exaggerated Altium's current issues.
Altium's long-term growth prospects continue to look attractive. The growing number of smart connected devices is likely to lead to continued demand for Altium's products over the next decade.
