These observations about ALU's PE valuation are interesting. The strong share price performance since the result has certainly impacted valuation metrics. The following observations are based upon the latest research of Blue Ocean Equities, which does the best research on Altium:
On 20 February, prior to the result, the 2018 forward PE was 39.2x (at the share price of $14.90). This PE has risen to 51.6x at the latest closing share price of $19.62.
Similarly, using BOEQ's numbers, on 20 February the 2020 forward PE was 22.6x (at the share price of $14.90). This PE has risen to 29.8x.
BOEQ's net present value is $23.06 per share.
The very favourable share price response to the half year results has been sufficiently strong to impact valuation metrics. But, I am not sure it is 50% overvalued, which suggests a fair value of ~$13 per share. Rather, it is closer to being fully priced now, but the valuation metrics become more reasonable 2 years hence - in other words, Altium is "growing into" its valuation, which is supported by its strong financial and operational performance. It is also still trading below its NPV.
Also, it seems more confident in its growth profile, and in addition to restating its 2020 revenue target of $200m, has set itself the 2025 revenue target of $300m. China, as another poster has highlighted, is growing strongly and is potentially a "company-making" market all by itself.
In conclusion, in my view Altium is still somewhere in the range of fairly valued to undervalued. It is one of those stocks that often looks expensive, but if one had sold on that basis in the past, one would have left a lot of money on the table. Its share price is clearly the outcome of a good management delivering superior results. But, I concur, that if the growth profile were to slow the share price would be at risk. It just seems to me that, if anything, growth is strengthening and its valuation metrics are responding to this.
ALU Price at posting:
$19.62 Sentiment: Buy Disclosure: Held
