The Altium Limited (ASX: ALU) share price is having a difficult day.
In early trade, the electronic design software company's shares are down 7% to $35.50.
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Why is the Altium share price dropping?
Investors have been selling down Altium's shares for a couple of reasons this morning.
The first is a market selloff driven by significant weakness on Wall Street last night after US inflation failed to cool as some were expecting.
The tech-focused NASDAQ index was hit hardest and recorded a 5.2% decline. This has unfortunately rubbed off on the local tech sector today, with the S&P/ASX All Technology Index down 3.9% at the time of writing.
What else?
Also putting a bit of pressure on the Altium share price has been a broker note out of Bell Potter this morning.
Although the broker remains a big fan of the company, it decided to downgrade Altium's shares to a hold rating with an improved price target of $40.00.
Bell Potter made the move on valuation grounds following a strong gain in recent weeks. It explained:
At our updated PT of $40.00 the expected excess return is <15% so we downgrade our recommendation to HOLD. We continue to be positive on the outlook for Altium but now see the stock as around fair value trading on an FY23 EV/EBITDA and PE ratio of 36x and 58x. We also see a lack of short term potential catalysts for the stock given Altium does not tend to make many announcements outside of results and we do not expect the company to upgrade its guidance at the AGM in November given it will still be relatively early in the financial year. In our view the key risk to our downgrade is the company makes an accretive and/or strategic acquisition of reasonable size which seems a possibility especially with the strong Balance Sheet.
