Is the Altium (ASX:ALU) share price too cheap to ignore?

Altium shares have fallen heavily since the start of the year. Is it too cheap not to buy?

| More on:
A male ASX investor wearing glasses and a beanie and denim shirt puts his hand to his chin wondering whether to buy ASX shares

Image source: Getty Images

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

Key points

  • The Altium share price has fallen significantly in 2022
  • After a 30% drop this calendar year, is the electronic PCB design software business a good opportunity?
  • The ASX tech share is growing revenue, scaling Altium 365, and it’s benefiting from the electrical parts shortage

The Altium Limited (ASX: ALU) share price has fallen by almost 30% since the start of 2022. It begs the question: Has the ASX tech share dropped so much that it's too cheap to ignore?

Altium is one of many technology businesses that have declined substantially this year. For example, the Xero Limited (ASX: XRO) share price has dropped 35% in 2022 while the Appen Ltd (ASX: APX) share price has sunk 38%.

There are plenty of issues making headlines right now such as the impacts of the Russian invasion of Ukraine, global inflation, potential interest hikes, and supply chain problems.

But, after the Altium share price decline, is it excellent value?

Analyst thoughts on the Altium share price

After seeing Altium's recent FY22 half-year result, Macquarie analysts rated the ccompany as 'underperform'.

The result and management commentary were stronger than Macquarie had forecast, though the broker expects the second half of FY22 to show slower growth. It also noted that Altium's outlook for acquisitions is better given the decline in valuation of many technology businesses.

The Altium price target from Macquarie is just $25.90. That's almost 20% lower than it is today.

However, Citi is a bit more optimistic. Citi is 'neutral' on the ASX tech share. The broker's Altium share price target is $34.10, suggesting a possible upside of 8% over the next year. Citi is expecting ongoing investment into research and development by Altium, which may impact profit margins.

FY22 half-year report wrap

For investors who didn't see the result, Altium achieved growth in most areas of its business in the first six months of the 2022 financial year.

Altium's revenue grew by 28% to US$102 million. Octopart, the electrical parts search engine division, saw revenue surge by 105% to US$22 million. Octopart is being helped by tailwinds from the global electronic parts shortage.

There was double-digit revenue growth from all regions, except China, which only grew by 6% as the nation felt the temporary impact of regional COVID-19 lockdowns.

Annual recurring revenue (ARR) rose 43% year on year and recurring revenue now accounts for 74% of total revenue, up from 65% in the same period last year.

Earnings per share (EPS) rose by 37% to 17.4 cents and operating cash flow jumped 78% to US$33 million. The board decided to increase the interim dividend by 11% to AU$0.21 per share.

Growth outlook

For Altium, a key part of its growth plan is scaling its cloud offering. Altium 365 allows engineers to collaborate and access their designs from anywhere. It is proving to be popular. In the first six months of FY22, its number of monthly active users reached 19,700 – this was a 54% increase since August 2021.

The ASX tech share upgraded its revenue guidance for FY22 to the high end of the forecast range. Revenue is expected to grow between 18% to 20% to a range of US$213 million to US$217 million for the financial year.

Altium share price valuation

Based on Citi's FY22 profit estimates, Altium shares are valued at 62x forecast earnings.

However, Macquarie's lower profit estimate puts the Altium share price at 63x FY22's forecast earnings.

Motley Fool contributor Tristan Harrison owns Altium. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Altium, Appen Ltd, and Xero. The Motley Fool Australia owns and has recommended Appen Ltd and Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Technology Shares

two computer geeks sit across from each other with their laptop computers touching as they look confused and confounded by what they are seeing on their screens.
Technology Shares

What's happening with ASX 200 tech shares following the Nasdaq rout?

Aussie tech investors will be eyeing the big retrace in the Nasdaq overnight.

Read more »

Lithium ion batteries
Earnings Results

Needs a recharge: Novonix share price sees red after Q3 earnings

Investors were likely expecting a tad more.

Read more »

Two boys in business suits holding handfuls of money
International Stock News

Here are the US stocks that just delivered James Packer a $590 million profit

US tech continues to dominate.

Read more »

Man pointing at a blue rising share price graph.
Technology Shares

Guess which ASX tech stock just leapt 26% on accelerating growth

Here’s what’s grabbing investor interest.

Read more »

A woman screams and holds her hands up in frustration.
Technology Shares

Cettire shares crash 17% on sinking profits

This online retailer has had a tough start to FY 2025. Here's what you need to know.

Read more »

Excited group of friends sitting on sofa watching sports on TV and celebrating.
Technology Shares

Why this top broker just upgraded DroneShield shares

Bell Potter sees recent share price weakness as a buying opportunity for investors.

Read more »

A woman holds a soldering tool as she sits in front of a computer screen while working on the manufacturing of technology equipment in a laboratory environment.
Technology Shares

Big Tech could make or break ASX shares this week. Here's why

This week will be huge from an earnings perspective.

Read more »

Focused man entrepreneur with glasses working, looking at laptop screen thinking about something intently while sitting in the office.
AI Stocks

Down 12% in a week. Why are Appen shares sinking again?

The tech stock continues its slide today.

Read more »