Here’s why the Altium (ASX:ALU) share price could be a buy

The Altium Limited (ASX:ALU) share price could be a buy because of a number of different reasons, including cloud offering called Altium 365.

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Altium share price

There are a few different reasons why the Altium Limited (ASX: ALU) share price could be worth looking at.

What is Altium?

Altium describes itself as a multinational software business that focuses on electronic design systems for 3D PCB design and embedded system development. The company says that its products are found everywhere from world leading electronics design systems to the grassroots electronic design community.

It has a number of different products for different clients such as Altium Designer, Altium NEXUS, Octopart and Altium 365.

Whilst the company is headquartered in San Diego, California, it has locations around the world in the US, Europe and the Asia Pacific regions.

Here’s why the Altium share price could be worth looking at

The Altium business has grown a lot over the past decade and it has become a major player in the electronic PCB software world. It has been falling in recent months due to COVID-19 impacts. 

Here are some reasons why investors may wish to consider Altium shares:

1: Growing market share

Altium management have a long-term goal of dominating the global electronic PCB software space and transforming it.

The company has previously referred to Microsoft as an example of how it gained a huge market position in the office software space. Microsoft was able to dictate what to focus development on, and it also had strong market power.

In every financial result, Altium reveals that it has grown its number of subscribers. The company has a long-term goal of 100,000 Altium Designer subscribers. In FY20 it said that its Altium Designer subscriber numbers increased by 17% to 51,006, with the number of new Altium Designer seats sold increased by 15%.

Altium says that over 30,000 companies use its software. Some of the world’s leading organisations and businesses use Altium software like Tesla, Space X, Boeing, Lockheed Martin, John Deere, Google, Bosch, CSIRO, Honeywell, Microsoft, Cochlear Limited (ASX: COH), ResMed Inc (ASX: RMD), Siemens, Amazon, Disney, Apple, Qualcomm, Broadcom and Texas Instruments.

The growing market share is a contributing reason why the Altium share price has risen over the years. 

2: Altium 365

Altium 365 is an online platform for engineers to work online together as a team and access the software. Management call this shift the ‘Netflix moment’ when a company shifts to an online model – Netflix used to just be a DVD mailing service.

The company says that Altium 365 provides opportunities for significant addressable market expansion. Not only does it modernise the electronic PCB design process and make it more likely to win more clients, through the cloud, but it also it opens up revenue opportunities.

One possibility for direct monetisation is generating transaction fees on manufacturing (like the Airbnb model) and the other option is offering premium services (like the Amazon Prime model).

Altium is shifting its whole business and operational model towards the cloud with Altium 365 being the main focus of future growth.

3: Strong balance sheet

Altium is debt free and it has been steadily growing its cash pile. In FY20 it finished with a cash balance of $91.3 million, which was 16% higher than the previous year.

That was before Altium announced the US$110 million sale of its TASKING business which will improve its balance sheet further. The sale will free up organisational capacity and allow leadership to focus on expanding Altium 365.

Altium’s cashflow and balance sheet has allowed the company to keep growing the dividend for shareholders whilst the Altium share price acts with volatility just like every other share. 

Altium valuation

According to Commsec, the Altium share price is valued at 44x FY23’s estimated earnings. That’s after a 23% fall from 21 October 2020.

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Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends Altium. The Motley Fool Australia owns shares of Altium. The Motley Fool Australia has recommended Cochlear Ltd. and ResMed Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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