Is the Altium (ASX:ALU) share price a buy?

Could the Altium share price be a buy?

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Might the Altium Limited (ASX: ALU) share price be a buy today?

The business has been quite volatile in recent weeks. Over the last month, Altium shares are down almost 6% to $35.56. But it went as low as $32.60 in the week after the market learned that Autodesk had walked away from the negotiating table.

Failed takeover

Two months ago, investors learned that Autodesk had approached Altium with a takeover bid of $38.50 per share.

But, Altium rejected that bid. The Altium board said it appreciated the interested expressed by Autodesk (which had evolved from a dialogue about a strategic partnership). However, Altium’s leadership believed the offer “significantly” undervalued Altium’s prospects.

Altium said that it has a unique position in the electronics ecosystem and in the past unsolicited acquisition interest has developed from partnership dialogues with others in the ecosystem.

The company said that its strong track record of setting ambitious long-term goals and achieving them, gives the board confidence in its ability to pursue its transformation strategy for the electronics industry and to achieve its 2025 financial goals.

Altium believes it’s now well positioned to pursue market dominance and industry transformation. The adoption of Altium’s cloud platform is transforming Altium’s business model from maintenance-based subscription to capability-based software as a service (SaaS) subscription.

There was media talk that a somewhat higher bid from Autodesk was being talked about, but the US business has since walked away and Altium said that there hadn’t been another formal bid. The Altium share price fell 11% in the week after that announcement.

Trading update

In the middle of June, Altium said that it was expecting FY21 revenue to be at the low end of its guidance range of US$190 million to US$195 million. The earnings before interest, tax, depreciation and amortisation (EBITDA) margin is also expected to be at the low end of its guidance range of 37% to 39% on an underlying basis.

However, Altium did say that momentum has returned to Altium’s business with double digit growth in the second half. However, the slow first half has impacted the overall FY21 result.

However, the company’s ‘renewal’ business is strong, Octopart is set for a record performance and China is delivering a “solid” performance.

Adoption of the Altium 365 cloud platform has increased and there are now more than 13,100 monthly active users and 6,300 monthly active accounts.

Is the Altium share price a buy?

The broker Credit Suisse certainly thinks so. It currently has a buy rating on the business with a price target of $42. That suggests a possible rise of almost 20% over the next 12 months if the broker is right. However, that was before Autodesk walked away.

Time will tell if Altium management are able to justify their confidence in knocking back Autodesk’s interest.

According to Credit Suisse, Altium shares are valued at 70x FY22’s estimated earnings right now.

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Motley Fool contributor Tristan Harrison owns shares of Altium. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Altium. The Motley Fool Australia owns shares of and has recommended Altium. 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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