The Altium Limited (ASX: ALU) share price is trading lower on Tuesday.
In afternoon trade, the electronic design software company's shares are down 1% to $35.95.
This means the Altium share price is now down approximately 20% in 2022.
Is the Altium share price weakness a buy opportunity?
Goldman Sachs has been looking at Altium this week and has given its verdict on the company's shares.
According to the note, while the broker only initiated coverage on the company's shares with a neutral rating, it does see plenty of value in them at the current level.
Goldman has initiated with a price target of $42.00, which implies potential upside of almost 17% for investors. It commented:
Altium is seeing strong momentum from its flagship, desktop based software, Altium Designer, while has significant monetisation opportunities as it transitions this to the cloud (365) and fully leverages its #1 electronic parts marketplace Octopart.
Bull and bear cases
Goldman also revealed that it sees scope for the Altium share price to rise to $66 in its bull case scenario and fall as low as $29 in its bear case scenario.
The broker explained the bull case scenario:
Our Bull case scenario factoring in: Pathway to US$500mn FY26 revenues at 40% EBITDA margins (in-line with targets), and a corresponding re-rating in ALU's multiple to 49x, which reflects the median growth adjusted multiple of profitable ANZ Tech Peers (1.9x) and the stronger EBITDA growth (+25% FY22-25E CAGR). We do not include an M&A valuation given an acceleration in earnings would likely extend the premium past its peak vs. ANZ technology peers (which is the basis of our 15% base case M&A Valuation).
As for the bear case scenario, it said:
Our Bear case scenario assumes: difficult PCB subscription growth given business uncertainty (10% B&S Rev CAGR) supported by solid pricing, a normalisation in the outlook for Octopart post Covid supply chain tailwinds (11% Rev CAGR), with modest margin expansion, and a corresponding lower fundamental multiple of 22x driving an A$26 fundamental valuation, based on the growth adj. EBITDA multiple of ANZ Technology peers (1.9x) and the softer growth outlook (11% EBITDA CAGR). This fundamental valuation (85% weighting) and a 15% weighting of a M&A valuation of A$48 derived from a lower earnings expectation on 42x EV/EBITDA (in-line with base case), gives an overall bear case valuation of A$29.
Based on the above, the next few years are likely to be very interesting and potentially very rewarding for investors if things go to plan.
