Is it too late to buy rapid risers ARM Holdings plc, WPP plc ord 10p and Hikma Pharmaceuticals plc?

Edward Sheldon looks at whether it’s too late to buy fast movers ARM Holdings plc (LON: ARM), WPP plc ord 10p (LON: WPP) and Hikma Pharmaceuticals plc (LON: HIK).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

After the market-wide Brexit carnage on the morning of 24 June, I’ve been quite surprised by the rapid rebounds in many FTSE 100 stocks. Today I’m looking at three popular UK growth companies and examining whether it’s too late to jump on board these gravity defying stocks.

Tech king

After trading as low as 970p on 24 June, ARM Holdings (LSE: ARM) has spiked to 1,200p, a 24% gain.  At that price ARM is trading on a current P/E ratio of 49, which falls to 33 on next year’s earnings. Is that too much to pay?

While a P/E ratio of 49 might seem high, on a relative basis it’s actually low for ARM. The tech giant has traditionally traded on high multiples thanks to its impressive growth record, with its P/E ratio climbing as high as 143 in early 2014 and averaging 59 over the last 10 years on a quarterly basis.

While analysts have concerns over slowing smartphone growth, I believe the long term growth story is still intact at ARM. The company is broadening its revenue base to focus on networking, servers and the Internet of Things and these areas should offset any weakness in smartphone chip revenues.  

ARM has grown its earnings at an annualised rate of 29% over the last five years and with the city forecasting revenue growth of 20% and 13% for the next two years, long term investors should continue to be rewarded.

Blue sky territory

Advertising giant WPP (LSE: WPP) has rebounded 13% since its post Brexit lows and is now trading in blue sky territory, having surpassed its all-time highs set in April.

As advertising companies are often seen as proxies for global growth, I wasn’t expecting to see such a rise from WPP with the current economic uncertainty surrounding the UK and Europe. However WPP has strong exposure to the US and fast growing emerging markets, and this has clearly appealed to investors.

As a WPP shareholder I’m not complaining about the stock’s recent performance as the company has been one of the better performers in my portfolio since I bought it, showing gains of almost 30% in less than a year. But would I buy more WPP shares at the current price?

Trading on a P/E ratio of 15 times next year’s earnings, WPP doesn’t look particularly expensive, however looking at the share price chart it’s clear to see that it’s prone to peaks and troughs. For this reason, I’ll be waiting for another dip in the share price before I add to my position.

Fast gains

Hikma Pharmaceuticals (LSE: HIK) has been on my watch list for a while now and I’m kicking myself that I didn’t buy a small position during the Brexit chaos as the stock has risen an incredible 38% since then.

I’m very bullish on the long-term prospects for Hikma as after acquiring Bedford Laboratories and Roxane Laboratories in the last two years, the healthcare company is poised to launch many new drugs in the near future. Furthermore, with a high proportion of its sales in the US, Hikma should benefit from weaker sterling.

However, as with WPP, I’ll be waiting for a pullback before buying-in. Patience is everything in this game and I’m sure there will be a better opportunity to buy Hikma in the future at a lower price.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon owns shares in WPP. The Motley Fool UK has recommended ARM Holdings and Hikma Pharmaceuticals. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Ice cube tray filled with ice cubes and three loose ice cubes against dark wood.
Investing Articles

Just released: our 3 top income-focused stocks to buy before April [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Investing Articles

Is this the best chance to buy cheap FTSE 100 shares in a generation?

I want to buy shares when they're cheap, and sell... never, just keep taking the dividends. And the FTSE 100…

Read more »

Man putting his card into an ATM machine while his son sits in a stroller beside him.
Investing Articles

Could NatWest shares be 2024’s number one buy for passive income?

For those of us looking to earn some long-term passive income, how does NatWest's 7% dividend yield sound? It sounds…

Read more »

Investing Articles

£12K in savings? Here’s how I could turn that into £13K annual passive income

This Fool explains how investing a lump sum can help her build a passive income stream to enjoy in her…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Here’s why Rolls-Royce shares are now set to fly over the £4 mark

Once again, Rolls-Royce shares are crushing the FTSE 100. Should I add to my holding of this stock at the…

Read more »

Investing Articles

1 under the radar FTSE 100 AI stock investors should consider buying

Our writer explains why this FTSE 100 pick could be a shrewd investment with its established experience of using AI…

Read more »

Investing Articles

Does the beaten-down Diageo share price make it a no-brainer buy?

Harvey Jones spent years waiting for the Diageo share price to look like good value, before finally buying it in…

Read more »

One English pound placed on a graph to represent an economic down turn
Investing Articles

8%+ yields! Should I buy these FTSE 100 income shares this month?

Christopher Ruane weighs some pros and cons of two FTSE 100 shares, both of which have a dividend yield over…

Read more »