Is the Altium share price a buy after today’s update?

The Altium Limited (ASX: ALU) share price is having a rare off day and is sinking lower on Tuesday afternoon.

At the time of writing the electronic design software company’s shares are down 4% to $35.35.

Why is the Altium share price sinking lower?

Investors have been hitting the sell button today after Altium warned that it could fall short of its aspirational goal of US$200 million in revenue in FY 2020.

This is because the company is anticipating some headwinds in the important months of May and June. These have been caused by the ongoing restrictions and lockdowns associated with COVID-19 in the United States and Western Europe.

Altium’s CEO, Aram Mirkazemi, explained: “While engineers are actively doing prototype designs, and the electronics industry is holding up relatively well, the cash preservation priorities of small to medium size businesses are likely to affect the timing of closing sales in our typically strongest months of the year being May and especially June.”

The company’s CFO, Joe Bedewi, added: “Our long-term aspirational goal of US$200 million revenue for the full year will require our typically strong months of May and June to be unaffected and have the usual strong finish. At this point, given the economic consequences of the continued restrictions, this is likely to be a low probability.”

Is this a buying opportunity?

While this news is slightly disappointing, it is not unexpected given how the pandemic has shaken the global economy.

Furthermore, the market was already predicting revenues lower than this aspiration target.

According to a note out of Goldman Sachs, it was forecasting FY 2020 revenue of US$194 million and EBITDA of US$71 million. This was largely in line with the market’s expectations, with the Bloomberg consensus at US$186 million and EBITDA of US$71 million.

And while there may be concerns that the weakness could carry over into FY 2021, Goldman Sachs remains comfortable with its estimates. Both the broker and the consensus are expecting revenue growth of 18% next year.

The broker commented: “… our FY21E revenue forecasts (and those of consensus) assume +18% growth on FY20E. We regard this as achievable at this stage but note it is likely to be more second half weighted than usual as 1H21E is likely to still remain relatively challenging.”

I agree and believe Altium’s growth will accelerate once these headwinds ease. Which could make it worth taking advantage of today’s share price weakness to pick up shares. Especially with the company still aiming to achieve market domination and 100,000 subscribers by 2025.

This will be double its expected FY 2020 subscriber base and, along with its other growing businesses, should drive strong earnings growth as it scales.

More reading

• ASX 200 sinks 1.3%: Big four banks drag ASX lower & Altium issues sales warning
• Why Altium, ELMO, Suncorp, & Webjet shares are sinking lower
• 3 ASX tech shares to buy now for long-term returns
• Altium share price on watch after warning of tough trading conditions
• In a post-COVID world, could Australia be the next superpower?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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.

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