In morning trade the Altium Limited (ASX: ALU) share price has come under pressure after the release of a trading update.

At the time of writing the electronic design software company’s shares are down 7% to $33.70.

What did Altium announce?

In May, Altium released an update and warned that its performance in the fourth quarter of FY 2020 was being impacted by the pandemic.

It was optimistic that the launch of attractive pricing and extended payment terms would drive volume in challenging market conditions.

However, while these initiatives are driving strong seat growth, management advised that the increase in revenue for FY 2020 will be short of consensus estimates.

This is the result of new lockdowns in China and an increase in COVID-19 cases in parts of the US, which are having an impact on Altium’s final sprint to the close of the financial year.

Management notes that historically, the company closes a significant amount of its second half business in the last two weeks of June. But this year, sales run rates in June are falling short of what would be required to achieve the market’s expectations.

Altium CEO, Aram Mirkazemi, commented: “Our strategy to support our customers and to increase volume under COVID-19 conditions through attractive pricing and extended payment terms is driving strong seat growth and will get us close to or just surpass our key target of 50,000 subscribers.”

“However, we are feeling the revenue impact of this strategy. While we are likely to deliver solid revenue growth, this will land marginally behind latest analyst consensus for the full year,” he added.

Commenting on the pricing and payments strategy, Mr Mirkazemi believes Altium has made the right move.

He explained: “We see Altium’s approach to COVID-19 pricing and extended payment terms as the right thing to do to support our customers in this challenging environment and to not lose momentum as we enter the next phase of growth.”

But these initiatives won’t be around for much longer, with the company increasing its prices again from 1 July. An Altium Designer one-year subscription will be $9,945 in July, compared to $7,185 at present. It will also remove the extended payment terms from 1 September 2020.

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James Mickleboro 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 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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The A2 Milk Company Ltd (ASX: A2M) share price hit an all-time record high of $20.05 last Thursday. Rather than pushing higher, its shares fell 4.23% on Friday. Could this be an opportunity to buy a2 Milk shares at a discount? 

What caused the sell off of a2 Milk shares? 

On Friday, the a2 Milk share price fell on no news, despite the S&P/ASX 200 Index (ASX: XJO) closing up 0.10%.

The slump could be attributed to the a2 Milk share price rising 10% during the week, with shares hitting $20 for the first time and the company reaching a record $14 billion market capitalisation. Rather than pushing higher, investors might have taken this opportunity to sell shares to lock in profits. 

Is the a2 Milk share price a buy?

It is a fragile time to be buying shares, given how much the market has run up. Not only is the US and South America struggling to contain the coronavirus, but there are increasing fears of a second wave across Europe, China and Australia. Quantitative easing and record money supply across the world has created a serious discrepancy between the real economy and the markets. It is difficult to tell if the markets will continue pushing, or if a correction is imminent.

Despite the inherent risks in the broader economy and markets, I believe the a2 Milk share price is fair value at today’s prices. The company has a strong track record of consistent growth and the coronavirus may incite further tailwinds for its revenues moving forward. 

a2 Milk provided the market with a trading update and FY20 outlook on 22 April. The update highlighted that the business has continued to experience strong revenue growth across all key regions, particularly in its infant nutrition products sold in China and Australia. a2 Milk’s 3Q20 revenue was above expectations – the company attributed this result primarily to changes in consumer purchase behaviour and impulsive pantry stocking. 

The company’s 2H20 earnings before interest, tax, depreciation and amortisation margin is also anticipated to be higher than previously expected. Expanding margins have been driven by higher revenue from higher margin nutritional products, partly due to consumer pantry stocking in 3Q20, favourable foreign exchange rate movement, and lower than expected costs for travel. 

The overall performance for FY20 should see ongoing revenue growth across its key regions supported by its significant investment in marketing for China and US. Notwithstanding the uncertainty, it anticipates revenue for FY20 in the range of $1,700 million to $1,750 million. This would represent a 30.4% to 34.2% increase on FY19 revenue. 

Foolish takeaway

If the broader market is sold off, then the a2 Milk share price will get dragged down along with it. While I wouldn’t be in a hurry to buy a2 shares, I believe the company is fundamentally in a good place and continued earnings momentum should be expected. 

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Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. 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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The National Australia Bank Ltd. (ASX: NAB) share price has fallen 24.2% lower in 2020 but is the ASX bank share in the buy zone?

Why the NAB share price has slumped 24.2%

ASX bank shares were under real pressure during the February/March bear market. Investors panicked with many thinking that bank balance sheets could be stressed by mass loan defaults across the economy.

However, as we now know, this hasn’t proven to be the case. A combination of record government stimulus measures and a better-than-expected pandemic response has left the Aussie banks in a solid position.

So while the NAB share price is down 24.2%, it could have been much worse. The real question is whether or not NAB is a cheap buy at its current valuation.

Is NAB a cheap buy right now?

In order to determine whether the NAB share price is cheap, it pays to compare it to some of its peers.

The Westpac Banking Corp (ASX: WBC) share price is down 25.0% this year while Commonwealth Bank of Australia (ASX: CBA) shares have fallen 14.0%.

If we use the S&P/ASX 200 Index as a benchmark, which is down 11.1% for the year, then all 3 of these ASX 200 bank shares are underperforming in 2020.

While the big four are similar, it’s not as simple as saying that because NAB’s share price has fallen more than CommBank’s has, it’s an automatic buy.

NAB trades at a price-to-earnings (P/E) multiple of 16.8 times. Compared to CommBank which is at 12.46 and Westpac at 13.64, this would appear to make NAB a touch expensive.

It’s also true that NAB is yielding 6.1% right now compared to the higher-paying Westpac and CommBank yields of 9.6% and 6.3% respectively.

Of course, dividend yields can be misleading, especially with the ASX banks currently holding back on distributions under APRA’s orders.

However, from what I can see, the NAB share price isn’t a cheap buy right now. ASX bank shares, in general, could be undervalued, but I don’t think NAB is a real stand-out at $18.67 per share.

More reading

• Is there a better buy than JB Hi-Fi shares today?
• Is the a2 Milk share price a buy after falling nearly 5% on Friday?
• James Hardie share price in spotlight as it upgrades profit guidance
• ASX 200 Weekly Wrap: ASX back in the green
• Beat low interest rates with Telstra and these ASX dividend shares

Motley Fool contributor Ken Hall 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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