Altair Engineering Inc (ALTR, Financial) has recently experienced a notable daily gain of 11.48%, adding to its 3-month gain of 33.76%. Despite these impressive figures, there's an underlying question that concerns investors: is the stock modestly overvalued? With a reported Loss Per Share of $0.21, this analysis seeks to explore the true value of Altair Engineering, guiding investors through a comprehensive valuation assessment. Continue reading to understand the financial nuances and intrinsic worth of Altair Engineering.
Company Overview
Altair Engineering Inc is a prominent player in the engineering software industry, offering a comprehensive suite of enterprise-class tools that span the entire product lifecycle. With a significant portion of its revenue generated from its software segment, Altair Engineering specializes in optimizing design performance across various disciplines. The company's current stock price of $83.29 stands above the GF Value of $71.06, suggesting a potential discrepancy between market price and intrinsic value. This sets the stage for an in-depth analysis of Altair Engineering's valuation.
Understanding the GF Value
The GF Value is a unique metric that estimates the intrinsic value of a stock, taking into account historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and projected future business performance. According to the GF Value Line, Altair Engineering (ALTR, Financial), with a market cap of $6.80 billion, appears to be modestly overvalued at its current price. This valuation suggests that the long-term return on Altair Engineering's stock may not align with the company's business growth trajectory.
Link: Discover companies that may deliver higher future returns at reduced risk.
Financial Strength Analysis
Investors must consider a company's financial strength before investing, as weak financials can lead to a higher risk of loss. Altair Engineering's cash-to-debt ratio of 1.27 positions it unfavorably compared to 60.56% of competitors in the Software industry. With a financial strength rating of 6 out of 10, Altair Engineering's financial health is deemed fair.
Profitability and Growth Prospects
Profitability is a critical factor for long-term investment safety. Altair Engineering has had a mixed track record, with profitability for 3 out of the past 10 years. The company's operating margin of -2.95% is lower than 61.24% of its peers in the Software industry, indicating potential concerns. Furthermore, Altair Engineering's growth has been slower than industry averages, with a 3-year average EBITDA growth rate that lags behind 87.22% of its competitors.
ROIC vs. WACC
An essential aspect of profitability is the relationship between Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC). Ideally, a company's ROIC should exceed its WACC to indicate efficient cash flow generation relative to capital investment. Altair Engineering's ROIC of -6.52 is concerning, as it falls below its WACC of 11.52, suggesting that the company is not generating adequate returns on its investments.
Conclusive Insights
In summary, Altair Engineering (ALTR, Financial) is currently perceived as modestly overvalued. The company's financial condition is stable, yet its profitability raises concerns. Its growth rate also falls short when compared to many of its industry counterparts. For a more detailed financial overview of Altair Engineering, investors can examine its 30-Year Financials here.
To identify high-quality companies that may deliver above-average returns, consider exploring the GuruFocus High Quality Low Capex Screener.
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.
