Altair Engineering Inc. 's ALTR shares have been riding high, courtesy of its focus on optimizing product design, positive trends in its primary end market (automotive), accretive acquisitions along with operational efficiency.
Shares of the company have gained more than 33% in the past year against its industry's 17.3% decline. Encouragingly, the company, which shares space with Fluor Corporation FLR
, Jacobs Engineering Group Inc. JEC
and Quanta Services, Inc. PWR
in the Zacks Engineering - R and D Services industry, surpassed estimates in each of the trailing four quarters, recording average positive surprise of 102.1%.
Meanwhile, earnings estimates have been upwardly revised over the past few weeks, suggesting that sentiments on Altair Engineering are moving in the right direction. Also, earnings estimates for the current quarter and year have increased 11.1% and 10.3%, respectively, over the past 30 days.
This positive trend signifies bullish analysts' sentiments surrounding the stock. Moreover, the company's Zacks Rank #2 (Buy) indicates robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here
Let's delve deeper into the other factors that make this stock a solid pick.
What Makes Altair Engineering a Solid Bet?
Solid Industry Trends and Operational Efficiency: Positive fundamentals of the simulation market have been providing plenty of growth opportunities for Altair Engineering and peers. There has been a constant demand for simulation solutions, in order to drive efficiencies in the design and production process. This is leading to shorter design cycles and more innovations with reduced costs.
Altair Engineering is benefiting from these ongoing positive industry trends as well as its focus on R&D to optimize product design. The company has been generating higher software revenues on the back of product investments over the past few quarters along with positive trends in its primary end market (automotive). The company, which derives about 40% of its revenues from the automotive vertical, has been riding on the rise of electric vehicles and the emerging frontier of autonomous driving.
Strong Performance and Solid Growth Prospects: In the first nine months of 2018, the company's revenues increased 15.5% from the same period of 2017. Meanwhile, during the same period, software momentum continued to exhibit strong growth, equaling 18% from the prior-year period. Again, adjusted EBITDA margin of 8.7% during the said period expanded 290 basis points from 5.8% in the year-ago period. This improvement reflects continuing strong momentum in its software revenues, coupled with the emerging benefits of scale and certain operating expenses, as the business grows.
Altair Engineering has solid growth prospects, as is evident from the Zacks Consensus Estimate for current-year earnings of 32 cents per share, which are expected to grow 23.1% year over year (higher than the industry average of 11.1%). Meanwhile, the company's sales are expected to increase by a decent 13.9% in 2018. Moreover, its earnings are expected to increase 70.8% on 13.1% sales growth in 2019.
Overall, it constitutes a great pick in terms of growth investment, supported by a Growth Score of A.
Accretive Acquisitions: Altair Engineering follows a systematic inorganic strategy for expansion and has wrapped up a wide array of acquisitions that contributed significantly to its growth. In November 2018, the company agreed to acquire Datawatch, a data intelligence provider with market-leading enterprise data preparation, predictive analytics and visualization solutions.
In October, Altair Engineering acquired SIMSOLID, a CAD software company engaged in developing simulation technology. The company believes that SIMSOLID is a revolutionary technological breakthrough, which will have a profound impact on product design and deliver meaningful additional revenues for Altair over the next three years.
In May, Altair Engineering acquired Germany-based FluiDyna GmbH, a renowned developer of NVIDIA CUDA and GPU-based Computational Fluid Dynamics and numerical simulation technologies. Meanwhile, the company acquired CA-based CANDI Controls, Inc. in April.
VGM Score: Altair Engineering has a VGM Score of B. Our VGM Score identifies stocks that have the most attractive value, growth and momentum characteristics. In fact, our research shows that stocks with VGM Scores of A or B, when combined with a Zacks Rank #1 or 2, make a solid investment choice.
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Quanta Services, Inc. (PWR): Free Stock Analysis Report Jacobs Engineering Group Inc. (JEC): Free Stock Analysis Report Fluor Corporation (FLR): Free Stock Analysis Report Altair Engineering Inc. (ALTR): Free Stock Analysis Report To read this article on Zacks.com click here.