Down 10% already in 2022. Is the Altium (ASX:ALU) share price now a buy?

Are Altium shares an opportunity after dropping 10% in the first weeks of 2022?

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The Altium Limited (ASX: ALU) share price has fallen by around 11% in the early stages of 2022. But does the decline of the ASX tech share make it an attractive investment opportunity?

Altium is one of the world leaders when it comes to electronic PCB software providers. However, it is offering an increasing number of services these days. For example, Octopart is a leading search engine for electrical parts.

Is the Altium share price an opportunity?

Losing a tenth of its market capitalisation could be a significant decline in investors’ eyes

However, the decline may not be enough for some analysts. A fairly recent rating from Citi is ‘buy’, but the price target is $35.40. That means the broker thinks that Altium shares could decline by another 10% during this year.

The brokers at Macquarie have an even lower price target of $27.10. That implies the Altium share price could fall by more than 30% during the next several months. Analysts suggest that the Altium share price may have run too hard for what the company is expecting for the shorter-term.

How confident is the company right now?

Altium is focusing on a number of areas so that it can deliver on its goal of transforming the electronics industry.

One of the ways that Altium is looking to win over new subscribers and retain current ones is with its cloud platform called Altium 365, a first for the global industry. At the time of the mid-November AGM, Altium 365 had 17,300 active users and 7,300 active accounts.

During the AGM it revealed that 15% of seats are on a cloud subscription, with 40% in transition.

For readers that haven’t heard of Altium 365 before, it aims for be a platform for all software engineering disciplines to collaborate, design and build electronics for manufactured products.

Altium claims to be at the heart of the digital engineering ecosystem as the increasingly dominant provider of electronic design tools. Altium Designer is now the most widespread professional PCB design tool used by 100,000 engineers worldwide.

In FY22, the business is looking to accelerate adoption, scale enterprise sales through strategic partnerships, roll-out its digital sales platform and expand the Octopart total addressable market with its integration into Nexar.

One factor that could be helpful for the Altium share price could be growth of licence compliance in China and, in time, recurring revenue through Altium 365 China.

Finally, it’s launching Altimade and laying the foundation for smart manufacturing with a high profit margin.

The first four months of FY22 were “strong” and it’s on track to achieve its guidance. That guidance is for revenue to grow by between 16% to 20%, an underlying earnings before interest, tax, depreciation and amortisation (EBITDA) margin of between 34% to 36% and annualised recurring revenue (ARR) growth of 23% to 27%.

Long-term expectations

Altium notes that it’s estimated that the number of active internet of things (IoT) devices will pass 25.4 billion in 2030. This could be a good tailwind for Altium.

By 2025, Altium is looking to achieve US$500 million of revenue. The ASX tech share says that delivering value to shareholders is a hallmark of Altium.

Describing its approach to executing on its goals, Altium said:

Altium innovates and disrupts aggressively while consistently delivering a strong financial performance more typical of a blue chip company.

Altium share price valuation

Looking at the estimates for the next couple of years, Citi’s numbers put Altium shares at 82x FY22’s estimated earnings and 68x FY23’s estimated earnings.

Motley Fool contributor Tristan Harrison owns Altium. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Altium. The Motley Fool Australia has recommended Macquarie Group Limited. 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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