The Altium Limited (ASX: ALU) share price has slumped 6.7% lower in 2020 but is the Aussie tech company a steal at the current price of $32.41 per share?

Why the Altium share price could be a steal

Altium is a multinational software business that focuses on electronic design systems for 3D-printed circuit boards (PCBs). Altium is part of the ‘WAAAX’ group of tech shares which have been on a rollercoaster ride in 2020.

The recent bear market crushed the S&P/ASX 200 Index (ASX: XJO) before recovering in April and May. The Altium share price was no different, falling 38.1% in one month from 17 February to 17 March.

Altium is trading at $32.41 right now and would have been a steal at its 52-week low of $23.11. Clearly, the best time to buy was 5 years ago but the next best time could be today.

Altium’s value hasn’t surged higher in the way that Afterpay Ltd (ASX: APT) has in recent weeks. But not every ASX 200 share is Afterpay and that’s a tough benchmark to compete against.

The economy is starting to warm up again which is good news for Altium’s earnings.

Investors have been bullish on the Altium share price in recent weeks. Tech shares have been doing well on both the ASX 200 and overseas in the S&P 500 Index.

I think part of the appeal is the stable earnings that software as a service (SaaS) companies can generate. 

Altium has a strong development pipeline which is promising for the future. The group’s new cloud platform, Altium 365, could be the next step towards an integrated design platform for both supply chain and manufacturing.

If Altium can continue to capture more market share, the Altium share price could be a steal at its current $4.2 billion valuation.

Foolish takeaway

The Altium share price has recovered strongly since bottoming out in March. With a strong growth profile in the decades ahead, Altium could be the steal of the century if earnings continue to grow.

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Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Altium. The Motley Fool Australia owns shares of AFTERPAY T FPO. 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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I believe Aristocrat Leisure Limited (ASX: ALL) shares are one of this week’s great investing opportunities. The company provides systems, machinery and platforms for games of chance. It operates in many markets including the US and Asia. In addition, it has been announced it will be included in the S&P/ASX 20 (INDEXASX: XTL) from 22 June. 

For years I associated Aristocrat shares purely with poker machines. Although today their product and service offering now far exceeds that narrow revenue stream. I think Aristocrat shares are a very good buy at the current price, and the following 3 numbers are important for any would-be investor.

Sales growth rates

It is wise to analyse companies over a reasonable period of time, in most cases, this is between 5 – 10 years. Aristocrat has grown the company’s sales approximately 20% per year on average over a 10-year period. This means the company has developed new revenue streams and entered new markets while sustaining high levels of sales growth. It speaks volumes about its market knowledge and trust within the industry and gives me more confidence in Aristocrat shares. 

Return on equity

Return on equity (ROE) is also called return on net assets (RONA) because it is the net income of the company divided by its net assets. In other words, how effectively the company uses its assets to create profits. It is a good all-round indicator of the financial management of the company. 

Aristocrat has averaged an ROE of 28% over 10 years; an outstanding result in my view. In comparison, gigantic miner Rio Tinto Limited (ASX: RIO) is an asset-intensive company. It mines one of the world’s most profitable commodities. Yet Rio has a lower 10-year average ROE of 21.9.

Cash flow growth rate

Cash flow is the ability of a company to generate cash or cash equivalents. In my view, this is the most fundamental capability any company needs to generate value for investors. Free cash flow means a company can reinvest in itself, reduce future debt or return cash to investors via dividends.

Aristocrat has been able to grow its free cash at an average rate of 29.1% per year over 9 years. Understanding this helps to understand the company’s ability to drive the two figures.

Foolish takeaway

I think the coronavirus lockdown has presented investors with a unique chance to buy Aristocrat shares at a low entry price point. Today it is selling at a price-to-earnings ratio (P/E) of 9.9. This is more than 50% lower than its 10-year average P/E of 23. 

With good results in sales, ROE and cash flow, the company appears well managed. In addition, it will be in the ASX 20 on 22 June. I have a sneaking suspicion it is going to have better than expected full-year results due to increased online gambling. 

More reading

• Why the ASX 200 tumbled lower on Monday and 2 shares to buy
• 3 excellent ASX growth shares to invest $3,000 into right now
• 3 ASX shares to buy now with $10,000
• Can this ASX dividend share afford its 11% yield?
• How to turn $20,000 into $275,000 in 10 years with ASX 200 shares

Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. 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.

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