In just two weeks, the Altium Limited (ASX: ALU) share price has gone up by 7%. Could the ASX tech share keep going up?
Altium shares are starting to recover from the significant fall that the company has seen from the beginning of the year.
Even now, the Altium share price is still down around 25% in 2022.
What are the prospects for the company?
Growth expectations
A quote from the grandfather of (value) investing, Benjamin Graham, could be applicable here for the Altium share price. Benjamin Graham taught Warren Buffett about investing early in his investment life.
Mr Graham said:
In the short run, the market is a voting machine. But, in the long run, it is a weighing machine.
In other words, a business is subject to changes in popularity in the short-term. But in the long run, it can prove itself with the financial numbers it achieves.
Altium says it is picking up the pace towards market dominance and accelerating its transformative vision to digitally connect electronic design and manufacturing to the broader engineering ecosystem.
It has many offerings which engineers can use, including Altium Designer, Octopart, NEXUS and more. The cloud platform of Altium 365 is seeing rapid adoption by subscribers.
In FY22, Altium is expected to report revenue growth of between 18% to 20%, with annual recurring revenue (ARR) growth of between 23% to 27%.
By FY25 or FY26, it is aiming to reach US$500 million of revenue with 100,000 Altium Designer subscribers. Recurring revenue is expected to reach around 95% of the total, excluding China. The progress towards these goals could be an important influence on the Altium share price.
How Altium plans to win
Altium says that it's going to aggressively scale enterprise sales and bring forward direct monetisation of Altium 365. To sustain high growth and take advantage of opportunities, Altium says it must bring in new talent as it transitions beyond a software and product company to a cloud and platform company.
The ASX tech share believes that it is exceptionally placed to take advantage of the post-pandemic conditions and to attract top-level talent.
The margin impact of hiring talent and paying them with shares has already been included in Altium's 'flight path'. The underlying earnings before interest, tax, depreciation and amortisation (EBITDA) margin for FY22 is expected to be between 34% to 36%, with expectations it will grow close to 40% by FY25 or FY26.
Altium boasts that it has the only digital platform connecting electronic design to realisation in the mainstream engineering market.
Altimade is an area where the company sees growth, alongside its core software. This provides cloud-based 'smart' manufacturing that aims to improve productivity and manufacturability of electronics hardware and manage the supply chain of components as well as production risk.
Is the Altium share price a buy?
The broker Bell Potter currently has a buy rating on the Altium share price, with a price target of $38.75. That implies a potential upside of around 15% from the current price.
However, Citi rates it as a hold with a price target of $34.10, which is only slightly higher than where it is now.
