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Is the Altium (ASX:ALU) share price in the buy zone?

The Altium Limited (ASX:ALU) share price is on the move on Thursday following the release of its annual general meeting update…
The post Is the Altium (ASX:ALU) share price in the buy zone? appeared first on Motley Fool Australia. –

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On Thursday the Altium Limited (ASX: ALU) share price dropped 1% to $35.81.

This followed the release of the electronic software design platform provider’s annual general meeting presentation.

What happened at the meeting?

At the virtual meeting, management was very upbeat on its future, noting that its shift to the cloud with its Altium 365 platform will be a big positive for the company.

Altium’s CEO, Aram Mirkazemi, believes the shift will help the company in its quest to dominate the market and then transform it.

He commented: “While dominance and transformation are part of one journey, this strategy sets up two engines of growth for value creation. Our strong software business drives our dominance engine, and our new cloud platform Altium 365, is the basis of our transformation engine. From a business perspective, these two engines provide independent drive, and at the same time are complementary and reinforce each other,” he added.

He believes this shift will be supportive of its target of almost doubling its subscriber number to 100,000 by 2025.

So why did the Altium share price drop lower?

While the medium to long term looks very positive, the near term appears to be more challenging based on management’s comments. This could explain why the Altium share price underperformed yesterday.

Management advised that it is continuing to be impacted by COVID-19. And while the last two months have been more positive, its full year result will be reliant on a strong second half.

Based on a 45/55 revenue split between the halves, management expects to deliver revenue in the range of $US200 million to US$212 million in FY 2020. This will be a year on year increase of 6% to 12%.

In respect to earnings, Altium expects this to lead to earnings before interest, tax, depreciation and amortisation (EBITDA) of US$76 million to US$89 million. This represents a 0.1% decline to 16% increase from the US$76.63 million it recorded in FY 2020.

Mr Mirkazemi commented: “Traditionally, our first half EBITDA margin is always lower than our second half as a stronger second half revenue positively impacts our EBITDA. I expect this to be exaggerated this year by COVID but confident that full year EBITDA margin will remain well within the range.”

Is the Altium share price in the buy zone?

One broker that is sitting on the fence following this update is Goldman Sachs.

After looking through its update, the broker has retained its neutral rating and $36.35 price target on its shares.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Altium. The Motley Fool Australia has no position in any of the stocks mentioned. 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 Scott Phillips.

The post Is the Altium (ASX:ALU) share price in the buy zone? appeared first on Motley Fool Australia.

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