Is beaten-down Altium Limited a bargain buy?

Altium Limited (ASX:ALU) shares have been hammered in the last month. Has this software company become a bargain buy?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Much to the dismay of its shareholders, the shares of Altium Limited (ASX: ALU) have once again dropped lower today. In morning trade the shares were lower by as much as 6%, meaning it was down by over 21% from its September high of $9.98.

At this price I think it is fair to say that the software-as-a-service company is starting to look like a real bargain.

In FY 2016 the company reported a 20.9% rise in EBITDA to US$27.4 million. Thanks to the phenomenal growth of the internet of things market, I expect this level of performance will be maintained for some time to come.

According to information technology research firm Gartner, there will be 6.4 billion connected devices in use worldwide by the end of the year. Gartner expects this to rise to a staggering 20.8 billion devices by 2020.

Altium plays a key role in the industry by providing software that enables companies to design the printed circuit boards used in connected devices.

So with the industry growing at such a rapid rate I feel confident that management will achieve its target of doubling its revenue to US$200 million by 2020.

Especially with its partnership with France-based software giant Dassault Systemes expected to boost top line growth from next year. Pleasingly this leading mechanical computer aided design company recently included Altium's software in the latest version of its popular SolidWorks product.

Each of the last five years has seen Altium increase its EBITDA margin. Currently the company boasts an EBITDA margin of 29%, but as it continues to scale I expect its margins could still expand further.

In light of this I feel confident that the company will continue to grow its earnings at a rapid clip at least through to 2020.

So with its shares changing hands at 25x estimated FY 2017 earnings, I feel Altium is up there with Aconex Ltd (ASX: ACX) and iSentia Group Ltd (ASX: ISD) as one of the best investments in the information technology industry today.

Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia owns shares of Altium. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »