Investment Idea: Altair Engineering Inc. (ALTR)
Altair Engineering Inc. (ALTR) - Investment Idea
Price (as of Oct 26, 2023): $111.85 Market Cap: $9.6 Billion
1. Executive Summary
We initiate a positive view on Altair Engineering (ALTR). ALTR is poised for continued growth driven by increased adoption of its simulation, high-performance computing (HPC), and data analytics solutions. The company's diverse customer base and comprehensive software suite provide a strong foundation for long-term expansion.
2. Investment Thesis
The bull case for Altair rests on the following pillars:
-
Diversified and Growing Market: ALTR's solutions are applicable across numerous industries, including manufacturing, aerospace, automotive, and financial services. This diversification reduces reliance on any single sector and positions the company to capitalize on broad digital transformation trends. The growing need for simulation, HPC, and data analytics tools to optimize product design, improve operational efficiency, and accelerate innovation provides a robust tailwind for ALTR's software segment.
-
Comprehensive Software Suite and Strategic Acquisitions: ALTR's integrated suite of software, optimizing design performance across various disciplines (structures, motion, fluids, electromagnetics, etc.), provides a competitive advantage. The company's continuous development of solvers and optimization technology products positions them well against competitors. This is further strengthened by strategic acquisitions to bolster its capabilities in specific areas like computational fluid dynamics and fatigue analysis, enhancing its value proposition to customers. The company's focus on Internet of Things (IoT) platform and analytics tools presents opportunities in the growing IoT market as well.
-
Recurring Revenue Model and High Switching Costs: ALTR's software segment benefits from a recurring revenue model, providing predictable cash flows and improving earnings visibility. Furthermore, the complexity of implementing and integrating ALTR's solutions creates high switching costs for customers, fostering long-term relationships and customer retention. The significant expertise needed to use the software effectively builds a moat around the business.