Motley Fool Australia

2 ASX shares I’d buy if this crash gets worse

Growing stack of coins on top of wooden blocks spelling out '2020', future wealth, asx future
Image source: Getty Images

Is this the start of the next crash for ASX shares and indeed the global share market?

We’ll see, but what’s clear is that share prices have dropped lower. Whether you look at BetaShares NASDAQ 100 ETF (ASX: NDQ), iShares S&P 500 ETF (ASX: IVV) or ASX tech shares like Afterpay Ltd (ASX: APT) – everything is down.

There are some great businesses on the ASX. There were loads of opportunities six months ago. Now some ASX shares are looking good value again. Something like A2 Milk Company Ltd (ASX: A2M) looks very interesting to me.

I’m interested in buying the best quality ideas, but some haven’t dropped far enough yet. However, if they dropped another 10% (or more) then I’d be very interested in these two ideas:

Altium Limited (ASX: ALU)

Altium is an electronic PCB software business. I have often written about Altium as a top ASX growth share idea. It has a lot of growth potential with the way the world is steadily getting more technological.

It can point to a very impressive client base. Customers include Tesla, Space X, Boeing, Bosch, Google, Amazon, Microsoft, Apple, Disney, Broadcom, Qualcomm, Siemens, Honeywell, CSIRO and so on.

FY20 has seen a significant slowdown due to COVID-19 impacts. Revenue only grew by 10% to US$189.1 million. The company still has a long-term goal of US$500 million of revenue, though that target is expected to take six to twelve months longer than before.

But many of the things that attracted me to Altium about its long-term potential are still there. The ASX share is still debt free, it still doesn’t capitalise its research and development costs, it still has a high earnings before interest, tax, depreciation and amortisation (EBITDA) margin (of around 40%) and so on.

Whilst COVID-19 is difficult, Altium is doing its best to offer clients the products to help them to continue to operate. Altium 365 is a cloud offering and it now has over 5,000 active users with more than 2,600 active accounts.

Due to these economic difficulties, I’m not as inclined to pay as high of a price for Altium shares as before. At the current Altium share price it’s priced at 52x FY22’s estimated earnings. However, I don’t think I would want to buy the ASX share at a share price above $30 for now.  

Pro Medicus Ltd (ASX: PME)

Pro Medicus is a healthcare IT business which specialises in enterprise imaging and radiology information system software.

The company had a really strong result in FY20. Underlying revenue grew by 23.9% to $56.8 million, underlying profit before tax grew 33.4% to $30.3 million, profit after tax went up 20.7% to $23.1 million.

Pro Medicus has a lot of attractive features. The ASX shares’s earnings before interest and tax (EBIT) margin increased to 52.5%, its cash balance rose 34.3% to $43.4 million and it remains debt free. The full year dividend was increased by 14.3% to $0.12 per share.

COVID-19 impacts were limited and over FY20 it won a few big contracts. Management disclosed that its sales pipeline continues to be very promising.

Pro Medicus is a very strong business and it has a very effective offering for doctors. However, I’m not buying it today because it’s still priced highly.

At the current Pro Medicus share price it’s trading at 66x FY22’s estimated earnings. That’s a high valuation despite the recent falls.

Foolish takeaway

I really like both of these ASX shares. They have great products and balance sheets. However, as investors the price we pay matters. I’d only want to think about buying if both of them fell by another 10%. There are other opportunities out there I’d buy first.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of June 30th

Tristan Harrison owns shares of Altium. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Altium. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of BETANASDAQ ETF UNITS. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends Pro Medicus Ltd. The Motley Fool Australia owns shares of and has recommended Pro Medicus Ltd. The Motley Fool Australia owns shares of A2 Milk and AFTERPAY T FPO. The Motley Fool Australia has recommended BETANASDAQ ETF UNITS. 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.

Related Articles…

Latest posts by Tristan Harrison (see all)