Will the Altium Limited (ASX: ALU) share price hit $50 in 2020?
The electronic PCB software business saw its share price rise 3% yesterday to above $40.
Every year investor think that Altium finally is done beating the market’s return annually. Yet each year it impresses with its results and sends the share price even higher.
It’s certainly not cheap. It’s now trading at 58x FY20’s estimated earnings. Ouch.
Is today’s price justified?
Altium sure looks expensive compared to the price/earnings ratio of a bank like Australia and New Zealand Banking Group (ASX: ANZ) or telco Telstra Corporation Ltd (ASX: TLS).
The thing is, Altium is a share that’s generating strong earnings growth. In FY19 its earnings per share (EPS) increased by 41% and its operating cash flow rose by 42%. Due to the well-run operations of Altium and its accounting policies, Altium’s free cash flow is noticeably better than the net profit it reports. So if you compare share valuations based on free cash flow it doesn’t look as expensive.
Altium has an impressive record of growth over the past several years and it’s aiming for strong growth to 2025 with goals of 100,000 Altium Designer seats, US$500 million of revenue and clear market leadership in the electronic PCB software space.
If Altium is able to get close to those goals over the next five years then its profit margins, profit and dividend will be much higher than what was reported in FY19.
However, with Altium already trading at 48x FY21’s estimated earnings the market has already priced a lot of growth – it may have to beat the lofty profit expectations for Altium’s 2020 total shareholder return to beat the market. But it’s definitely possible it could rise to $50 considering there are some tech shares on the ASX at much higher valuations.
Is time to buy Altium shares?
I own Altium shares. I have owned Altium shares for a long time, it’s my best performer by a long distance. I have previously sold a portion of my Altium shares when I thought it was expensive. It wasn’t wrong, and I bought some back at a price a little lower than I sold, but I wish I had kept all my Altium shares until today.
There aren’t many long-term performers out there that keep winning like Altium, Microsoft, Alphabet and so on. I want to hold on for Altium’s growth journey. I wouldn’t want to sell my Altium shares and face capital gains taxes, but I wouldn’t want to buy shares today either.
The post Will the Altium share price hit $50 in 2020? appeared first on Motley Fool Australia.
Instead of Altium, I’d much rather put new investment money into these highly-regarded growth shares.
Our experts here at The Motley Fool Australia have just released a fantastic report, detailing 5 dirt cheap shares that you can buy in 2020.
One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…
Another is a diversified conglomerate trading near a 52-week low all while offering a 2.7% fully franked yield...
Plus 3 more cheap bets that could position you to profit over the next 12 months!
See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.
- Man bets $221,666 on one ASX stock
- Top analysts name their top 3 ASX blue chip shares for 2019
- 3 quality dividend shares to boost your income
- NEW: Free report names top 3 ASX dividend shares to buy for 2019
- 5 Stocks for Potentially Building Wealth After 50
Motley Fool contributor Tristan Harrison owns shares of Altium. The Motley Fool Australia owns shares of and has recommended Telstra Limited. 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 Scott Phillips.
The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020