Is it possible that the Altium Limited (ASX: ALU) share price could fall to just $27 by Christmas?
The electronic PCB software business would end up falling more than 25% if it ended up going that low.
Brokers often come out with price targets for the businesses that they monitor. A price target is where the broker thinks that the business could go over the next 12 months. Not necessarily where it's going to be by Christmas.
One of the brokers that covers Altium is Macquarie Group Ltd (ASX: MQG), which currently rates the company as 'underperform'.
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Why is Macquarie negative on the Altium share price?
Macquarie has a price target on Altium of $27.10. That suggests that Altium shares could drop by around 27% over the next year, if the broker is right.
The broker notes that the company didn't meet expectations for FY21 and it thinks that the company is going to be at the lower end of its revenue guidance and that its goals may take longer to achieve.
What happened in FY21?
Excluding the divested TASKING business, revenue rose 6% to US$180.2 million. However, operating expenses grew 12% to US$120.2 million.
That fact that expenditure grew faster than revenue meant that continuing earnings before interest, tax, depreciation and amortisation (EBITDA) fell by 3% to US$60 million.
Profit before tax dropped 7% to US$47.7 million, whilst profit after tax soared 79% to US$35.3 million.
Operating cashflow increased 9% to US$61.7 million. The board decided to grow the annual dividend by 3% to AU$0.40 per share.
However, there were several areas of growth that Altium pointed to.
It said that it saw "strong growth" in annual recurring revenue (ARR) of 29%. The business said that recurring revenue was 65% of total revenue, up from 59% one year earlier, with "strong growth" in term-based licenses, which management said was a positive for future recurring revenue.
Second half continuing business revenue increased 16%, outpacing the first half. Octopart revenue grew by 42% to US$27 million for the full year. The Chinese division saw second half revenue growth of 47%, to deliver full year double digit growth.
Its subscriber growth was 7% to 54,394 subscribers.
Thoughts on the future
The Altium share price may be influenced by the company's outlook.
Management believe that the accelerating adoption of its cloud platform Altium 365 is strengthening its market position.
Altium says that Altium 365 enhances the value of its maintenance subscription to its customers and delivers software as a service-like (SaaS) subscription benefits to the company, reducing subscription churn for dominance.
Another benefit of the cloud platform is that the rapid adoption of Altium 365 is catching the attention of the industry and attracting strategic partners that could help it accelerate its vision to digitally connect electronic design to the broader engineering ecosystem.
The company is expecting to grow revenue by between 16% to 20%. It says it's returning to "strong pre-COVID growth", which it said was even more significant when considering its business model transition and move to the cloud.
Its long-term target is US$500 million of revenue.
What is the Altium share price valuation?
Based on Macquarie's numbers, it thinks that Altium shares are valued at 76x FY22's estimated earnings and 68x FY23's estimated earnings.
However, there are more optimistic price targets out there. For example, the broker Citi has a price target of $35.40 on Altium.
