The Motley Fool

Is It Still Safe To Buy ARM Holdings plc?

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.

I’m always searching for shares that can help ordinary investors like you make money from the stock market. However, many people are currently worried the market has been overheating.

So right now I’m analysing some of the most popular companies in the FTSE 100, hoping to establish if they can continue to outperform in today’s uncertain economy.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Today I’m looking at microchip designer ARM (LSE: ARM) (NASDAQ: ARMH.US) to determine whether the shares are still safe to buy at 830p.

So, how’s business going?

Over the last year or so, investors have been excited by ARM’s performance as the company’s profits surged higher, led by an ever-increasing demand for smaller, faster smartphones and devices.

Indeed, it would appear that this tech trend is not going to stop any time soon, as for the first quarter of this year, ARM reported a 31% year-on-year rise in pre-tax profit.

Having said that, some City analysts have started expressing concerns about the company’s ability to maintain the rapid rate of earnings growth, as sales at the firm’s largest customer, Apple are starting to slow.

In addition, analysts have raised concerns that the firm’s larger peer, Intel, is starting to muscle in on ARM’s dominance in the mobile processor market by offering technology of a similar nature.

Expected growth

Despite concerns about increasing competition in the sector and slowing sales at Apple, City analysts remain upbeat about ARM’s outlook.

City forecasts currently predict earnings of 21p per share for this year (40% growth) and 25p for 2014.

Shareholder returns

Unfortunately, ARM does not provide its shareholders with much in the way of cash returns and currently the company offers a dividend yield of only 0.6%.

Still, ARM’s management is committed to a progressive dividend policy and is expected to increase the payout 24% this year, to 5.6p a share, giving the company a prospective yield of 0.7%.

Valuation

As a fast-growing technology company, ARM has seen investors prepared to pay a premium for its shares. ARM trades at a historic P/E of 55, while its peers trade at an average historic P/E of around 42.

That said, ARM is on-track to grow earnings around 40% this year, which gives a PEG ratio of 1.3, indicating that the share price is only slightly expensive for the near-term earnings growth the firm is expected to produce.

Foolish summary

ARM’s rate of growth has been impressive during the past few year and many believe this trend will continue.

However, the firm currently trades at a very high P/E ratio and in this uncertain market, shares that are trading at a high valuation such as ARM are usually the most volatile.

So, all in all, due to the firm’s high valuation, I feel that ARM does not look safe to buy at 830p.

More FTSE opportunities

Although I feel that it is not safe to buy ARM, I am more positive on the five FTSE shares highlighted within this exclusive wealth report.

Indeed, all five opportunities offer a mix of robust prospects, illustrious histories and dependable dividends, and have just been declared by the Fool as “5 Shares You Can Retire On“.

Just click here for the report — it’s free.

In the meantime, please stay tuned for my next FTSE 100 verdict

> Rupert does not own any share mentioned in this article.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.