Here's what Goldman Sachs is saying about Altium shares

Is it time to buy this tech stock? Let's find out.

| More on:
A male sharemarket analyst sits at his desk looking intently at his laptop with two other monitors next to him showing stock price movements

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

Altium Limited (ASX: ALU) shares had a mixed day on Tuesday.

The electronic design software provider's shares ended the day a fraction higher at $36.70.

While a gain is always welcome, this was well short of what the ASX 200 index recorded. The benchmark index rose 0.45% to 7,339.7 points.

Should you snap up Altium shares?

The team at Goldman Sachs has been running the rule over the technology company this week.

And while it sees plenty of value in Altium shares, there's just not quite enough for the broker to recommend it as a buy.

According to the note, its analysts have retained their neutral rating with a trimmed price target of $41. This implies a potential upside of almost 12% from current levels. And if you include the 1.6% dividend yield it expects in FY 2023, the total potential return is over 13%.

What is the broker saying?

Goldman highlights that Altium has been on a hiring spree. While this could be interpreted as a positive, its analysts fear that it could pose margin risks in the current environment. Goldman explains:

Linkedin data shows +18% employee growth at Altium over the last 12m (vs. +3% LFL in FY22), which although consistent with 1H23 commentary, will likely limit any margin expansion for Altium in FY24 (GSe -47bps, VA consensus +115bps).

[W]e believe consensus under-appreciates the impact ALU's increased investment into softer revenue environment will have on FY24 profitability, with -6% downside risk to EBITDA expectations (GSe US$106mn vs. Cons. US$113mn).

Goldman then concludes:

We remain Neutral: Despite seeing downside risk to FY24 margin guidance (inline FY23), we believe current levels provide reasonable valuation support (trading on 1.8x fully capitalised EBITDA growth, vs. peer median c.2x), and continue to see M&A as a potential upside risk.

Motley Fool contributor James Mickleboro has positions in Altium. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Altium and Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Technology Shares

Group of people in a gym high five each other surrounded by gym equipment.
Mergers & Acquisitions

This ASX tech stock is hitting a record high on acquisition news

The market is responding positively to this news. Let's dig deeper into it.

Read more »

A man in a suit face palms at the downturn happening with shares today.
Technology Shares

Guess which ASX 300 share is crashing 17% on shock news

Investors are rushing to the exits on Thursday. Let's find out why.

Read more »

Cheerful boyfriend showing mobile phone to girlfriend in dining room. They are spending leisure time together at home and planning their financial future.
Technology Shares

These were the best ASX 200 tech stocks to buy in May

Shareholders of these shares were smiling last month. But why?

Read more »

A woman smiles as she sits on the bus using her phone and listening to music through headphones.
Technology Shares

Here's why I think these ASX tech shares are buys in June

These stocks have loads of potential.

Read more »

A young man wearing a black and white striped t-shirt looks surprised.
Technology Shares

Why did the Life360 share price rocket 51% in May?

This ASX 200 stock smashed the market last month with an incredible gain.

Read more »

Man ponders a receipt as he looks at his laptop.
Technology Shares

Up 30% since April, are Xero shares still a buy?

Xero shares have surged 30% since April, but can this SaaS leader's share price keep rising?

Read more »

A man and a woman sitting in a technology-related work environment high five each other while the man wears headphones around his neck and the woman sits in front of a laptop.
Share Market News

Strong gains for Wisetech, TechnologyOne, and Catapult amid ASX 200 tech sector lead

ASX technology shares led the market with a 3.85% increase while the ASX 200 lifted 0.88% last week.

Read more »

group of traders cheering at stock market
Technology Shares

Codan shares near an all time high. Can they go higher?

Is there more room for growth for this ASX 200 company? 

Read more »