My first investment in Altium Limited (ASX: ALU) shares has gone very well – it's a 10-bagger ASX stock. That means the investment has gone up ten times in value. I wish all my investments would do as well!
For readers that don't know what this business does, its main service is providing electronic PCB design software to electrical engineers, from one-person setups to large international teams.
Clients include Space X, NASA, Cochlear Ltd (ASX: COH), Audi and Mercedes.
Here are some of my favourite lessons that other investors can take away from this journey.
Revenue and profit margin growth is a winning combination
Investors often like to judge a business by how much profit it is generating. Therefore, good revenue growth helps in this area as a key driver of profit growth.
If profit margins are rising, then profit can rise even quicker than revenue, and the Altium share price can be driven higher.
Identifying those businesses that could deliver impressive numbers over time is appealing and worth investigating.
In the FY14 half-year result, Altium generated $31 million in sales and had an earnings before interest, tax, depreciation and amortisation (EBITDA) margin of 19%.
In the FY23 half-year result, it made $119.5 million of continuing operations revenue and achieved an EBITDA margin of 36.2%.
The company is aiming for $500 million of revenue with an underlying EBITDA margin of between 38% to 40% by 2026. This could help my 10-bagger stock do even better.
Hang on through volatility
If we look at the Altium share price over the past five years on the chart below, there have been a number of times when it has fallen by over 25%.
Many people may have used that volatility to sell out. But they would have missed out on the Altium share price recovery and ongoing success of the company. It wouldn't have been a 10-bagger ASX stock for my portfolio if I'd sold.
Great businesses are rare, so when they come along we should try to hold onto them for the long-term
Indeed, those times of heavy declines may have been a great time to invest in Altium shares.
Optionality is a big help
There are a number of great businesses that we can find on the global share market such as Apple, Microsoft, Alphabet and Amazon.com.
Think about where those businesses were 25 years ago and where they are now. Yes, they're obviously a lot bigger. But a key part of their success has been expanding away from their core offering into areas like smartphones, video gaming, online video and cloud computing.
I'm not suggesting that Altium is going to become as big as those US giants, but I think a business that is able to expand its offerings is great. Altium has a number of different software offerings, including Octopart – an online electrical parts search engine.
I think Altium's growth areas like cloud platform Altium 365, Octopart and Altimade can significantly drive the business in the next five years and make my 10-bagger ASX stock even better.
