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Altium Limited (ASX:ALU): Immense Growth Potential?

Simply Wall St

In August 2019, Altium Limited (ASX:ALU) announced its latest earnings update, which showed that the business experienced a strong tailwind, eventuating to a double-digit earnings growth of 41%. Below, I've laid out key growth figures on how market analysts predict Altium's earnings growth trajectory over the next couple of years and whether the future looks even brighter than the past. I will be looking at earnings excluding extraordinary items to exclude one-off activities to get a better understanding of the underlying drivers of earnings.

View our latest analysis for Altium

Market analysts' prospects for the upcoming year seems optimistic, with earnings rising by a robust 18%. This growth seems to continue into the following year with rates reaching double digit 44% compared to today’s earnings, and finally hitting US$94m by 2022.

ASX:ALU Past and Future Earnings, August 23rd 2019

While it’s informative understanding the growth year by year relative to today’s value, it may be more beneficial to determine the rate at which the company is moving every year, on average. The advantage of this approach is that we can get a bigger picture of the direction of Altium's earnings trajectory over the long run, irrespective of near term fluctuations, which may be more relevant for long term investors. To calculate this rate, I've appended a line of best fit through the forecasted earnings by market analysts. The slope of this line is the rate of earnings growth, which in this case is 18%. This means, we can expect Altium will grow its earnings by 18% every year for the next couple of years.

Next Steps:

For Altium, there are three key factors you should look at:

  1. Valuation: What is ALU worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether ALU is currently mispriced by the market.
  2. Future Earnings: How does ALU's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.
  3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of ALU? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.