The Altium Limited (ASX: ALU) share price has fallen 33% since the beginning of 2022. Could it now be good value?
For readers who haven't heard of Altium, it's a business that provides software tools for electronic [printed circuit board] PCB designers. As well as providing design tools, it also connects users with part suppliers and manufacturers to develop and manufacture electronic products faster and more efficiently. The company also offers cloud platform Altium 365, an electrical parts search engine Octopart, and several other services.
Altium's positives
The ASX tech share has a number of stated points on its website that investors may want to know about.
Altium makes a couple of points regarding its research and development (R&D). It notes it has 35 years of continuous research and development in PCB design. It also expends all of its R&D costs in the year that it happens, rather than spreading that cost over a number of years to boost the net profit after tax (NPAT).
The company points out that it has globally diversified earnings. According to its website, its revenue is comprised of 49% from the Americas, 32% from Europe, 13% from emerging markets, and 6% from the Asia-Pacific region.
Altium notes that its revenue is underpinned by subscriptions. In the first half of FY22, recurring revenue was 74% of the total revenue, up from 65% one year earlier. It also said that its annual recurring revenue (ARR) rose by 43%. It's expecting to reach 95% recurring revenue by 2025, excluding China.
Growth-focused
Altium says that it's committed to pursuing dominance and transformation of the electronics industry. The company said:
We continue to increase Altium Designer seats by double-digit annual rates, seeking dominance for what is already the most widely-used professional PCB design tool on the planet. Bringing this customer base onto Altium 365, the world's first digital platform for design and realisation of electronics hardware has the potential to transform the entire industry.
One of the goals of the company is the 'rule of 50'. This is where the revenue growth rate (in percentage terms) plus the earnings before interest, tax, depreciation and amortisation (EBITDA) margin is at least 50%. Altium is committed to achieving double-digit revenue growth.
Other goals of the company for the middle of this decade are US$500 million of revenue and 100,000 subscribers.
Management believes the business is well-positioned for future growth. Altium said:
Electronics are the heart of intelligent systems and PCBs are central to the design and realization of electronics and smart connected products. Our tools and platform accelerate those innovation cycles and create digital continuity to connect industry value chains.
Is the Altium share price a buy?
The broker Citi is currently 'neutral' on the company, with a price target of $34. That implies a potential upside of more than 10% for Altium shares. It's positive about the outlook for Octopart.
On Citi's numbers, the Altium share price is valued at 49 times FY23's estimated earnings.
