MENU

Why Change Is Great For Shareholders In ARM Holdings Plc

In business, I’ve found that everything changes. Indeed, it seems to change specifically when you feel you’ve just got organised and are supplying a good or service that is performing well and making money.

Furthermore, unless you are able to keep up with change, you will quickly be cast aside and replaced by some competitor or other who is only happy enough to ‘go with the flow’.

One sector that seems to change faster and more frequently than anything else is technology. Indeed, recent news concerning BlackBerry highlights this fact.

It was once the darling of the corporate world, being a status symbol among professionals and popular with businesses who coveted its secure, private network.

Today, it is up for sale having failed to adapt to changes in the mobile phone industry. The likes of Apple, Samsung and others have simply delivered greater innovation and embraced change, rather than stick to the same old products as BlackBerry seems to have done.

One company, though, that has been at the forefront of change is UK-based ARM Holdings (LSE: ARM) (NASDAQ: ARMH.US).

It has become the world’s leading semiconductor intellectual property supplier and, as such, is at the heart of the development of electronic products such as smartphones. The ARM business model is focused on the designing and licensing of intellectual property rather than the manufacturing and selling of actual semiconductor chips.

As such, ARM is essentially the company that is driving change within its markets. Unlike BlackBerry, which wouldn’t even embrace change until it was too late, ARM is at the forefront of new technology and is not merely attempting to ‘keep up with the pack’.

Therefore, the fact that technology changes quickly and frequently is a great thing for ARM (and its shareholders) because it means the company’s work and designs can quickly be adopted by change-seekers within the technology marketplace.

Of course, such potential for change does come at a cost. ARM currently trades on a price-to-earnings (P/E) ratio of 59. This is exceptionally high, even when compared to the wider technology sector, which has a P/E of 34.

However, to offset such a high valuation is a high growth rate. Earnings per share are forecast to double over the next three years, meaning shares could be trading on a P/E of 29 in three years time.

Of course, ARM is not the only attractive growth stock out there. Indeed, The Motley Fool has written an exclusive report entitled The Motley Fool’s Top Growth Share Of 2013.

If, like me, you are interested in potentially finding a growth stock that could be a real boost for your portfolio then I’d recommend you take a look.

It’s completely free – click here to take a look.

> Peter does not own shares in ARM. The Motley Fool owns shares in Apple.