Is the 30% fall in Altium a buying opportunity?

Electronic design software company Altium Limited (ASX:ALU) has confirmed its strong operational and market position in the new COVID-19 environment.

Notwithstanding the robust operational outlook, given the evolving nature of COVID-19 and uncertainty regarding its direction, management has taken a measured approach and withdrawn its earnings guidance.

Altium reaffirmed its long established aspirational market leadership target of US$200 million for fiscal 2020.

Given this backdrop, one has to question whether the sell down in its shares from more than $42.00 in February to a low of about $23.00 was warranted.

Perhaps the answer to that lies in the surge in its share price over the last two days which has seen it increase from approximately $27.00 to yesterday’s closing price of $30.45.

As a guide to fair value, a consensus of eight brokers attributed a valuation of $37.04.

Despite the uncertainty surrounding COVID-19, Altium is operationally and commercially well positioned, with electronic design anticipated to be relatively resilient to weather the prevailing and unfolding market conditions.

Equipping the workplace for COVID-19 situations

While acknowledging the COVID-19 environment is a fluid and evolving situation, Altium’s chief executive Mr Aram Mirkazemi said, “As a high-tech company, Altium’s global workforce is geared to work digitally and for the past two months we have greatly increased our focus on driving productivity in this new operating environment.

‘’We are fortunate that our operating model is robust and highly adaptable to the new global conditions, as our marketing and direct selling are conducted through the Internet and via telephone.

“Moreover, we are well diversified across industry segments and regions worldwide.

“At an industry level, electronic design is holding up relatively well in the new environment as engineers use excess time and capacity from the slowdown in manufacturing and supply chain to revert back to prototype designs.”

This sounds like a company that is set to rebound from the downturn bigger and better than ever, particularly given that its proprietary products have market leading positions across extremely robust and resilient industries.

Altium 365 the next big thing

Altium is accelerating the rollout of its cloud platform Altium 365, as worldwide demand is growing rapidly for cloud-based collaborative tools across all sectors and regions, a trend which may accelerate as workplaces gear up for further COVID-19 type challenges that necessitate remote working arrangements.

Altium 365 is a core enabler of its strategy of industry transformation through market dominance, and it supports the company’s drive to 100,000 subscribers by 2025.

Touching on the issue of remote access that we referred to earlier, Mirkazemi said, ‘’Altium 365 is particularly relevant to the circumstances that are unfolding under COVID-19, as it allows engineers to work from anywhere, and connect with anyone.

"We are also accelerating the rollout of our online/high volume selling approach, which will dramatically extend our inside sales capacity to support our drive through the fourth quarter and beyond.’’