Altair Engineering Inc (ALTR, Financial) recently showcased a notable daily gain of 11.48%, accompanied by a 3-month increase of 33.76%. However, with a Loss Per Share of $0.21, investors are prompted to question if the stock is modestly overvalued. This article delves into the valuation analysis of Altair Engineering, inviting readers to explore the comprehensive assessment that follows.
Company Overview
Altair Engineering Inc is a frontrunner in enterprise-class engineering software, facilitating the entire product lifecycle from conceptual design to in-service operation. The company's integrated software suite excels in optimizing design performance across a multitude of disciplines, including structures, motion, fluids, thermal management, system modeling, and embedded systems. With a primary focus on the software segment, Altair Engineering operates through two segments: Software and Client Engineering Services. Despite a current stock price of $83.29 and a market cap of $6.80 billion, the question arises: does the stock's valuation align with its intrinsic value?
Understanding GF Value
The GF Value is a proprietary metric that determines the intrinsic value of a stock, factoring in historical trading multiples, a GuruFocus adjustment for past performance and growth, and future business performance projections. The GF Value Line serves as a benchmark, suggesting the fair trading value of a stock. Altair Engineering (ALTR, Financial) is currently assessed as modestly overvalued by GuruFocus' valuation method. The GF Value suggests that the stock's fair value is influenced by historical trading multiples, internal adjustments based on past business growth, and future performance estimates. As such, Altair Engineering's long-term stock return may be lower than its business growth trajectory.
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Financial Strength
Investing in companies with robust financial strength minimizes the risk of permanent capital loss. Altair Engineering's cash-to-debt ratio stands at 1.27, trailing behind 60.49% of peers in the Software industry. With a GuruFocus financial strength rating of 6 out of 10, Altair Engineering's financial health is deemed fair.
Profitability and Growth
Companies with consistent profitability tend to be less risky, particularly those with a track record of profitability over an extended period. Altair Engineering has achieved profitability for 3 out of the past 10 years, with recent revenues of $601.60 million and a Loss Per Share of $0.21. However, its operating margin of -2.95% is lower than 61.19% of its industry counterparts. Additionally, Altair Engineering's growth prospects are a concern, with its 3-year average revenue growth rate underperforming 60.83% of the Software industry, and a 3-year average EBITDA growth rate of -30.5%, ranking lower than 87.19% of the industry.
ROIC vs. WACC
An insightful profitability measure is the comparison of a company's Return on Invested Capital (ROIC) against its Weighted Average Cost of Capital (WACC). A higher ROIC than WACC indicates value creation. Unfortunately, Altair Engineering's ROIC of -6.52 is below its WACC of 11.46, suggesting challenges in generating sufficient cash flow relative to capital invested.
Conclusion
In summary, Altair Engineering (ALTR, Financial) seems to be modestly overvalued. The company's financial condition and profitability are fair, but its growth ranks unfavorably compared to industry peers. For an in-depth understanding of Altair Engineering's financials, interested parties are encouraged to review its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
