Sexy Tech Makes Me Interested In ARM Holdings plc

My love for all things tech has led me to consider purchasing ARM Holdings plc (LON: ARM).

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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.

The new Apple iPhone 5S is fantastic. Of course, I don’t own one (at the moment), but the general consensus seems to be that its 64-bit processor is streets ahead of anything else and allows the phone to run more advanced apps more quickly.

However, I do own various other gadgets as well as a smartphone, many of which (like the new iPhone) use an ARM (LSE: ARM) (NASDAQ: ARMH.US)-designed chip, with ARM receiving a royalty for each unit sold.

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Indeed, the tech products that ARM is involved in tend to be among the higher quality and most advanced available, with the company partnering with the likes of Samsung as well as Apple; both of whom do not seem to struggle to sell large volumes of their products.

Not only does this mean that royalties are high for ARM, but that at the higher quality end its royalties are relatively higher due to the more advanced nature of the designs involved.

So, sexy products that are considered high-end do not only mean higher sales but a higher percentage of revenue per unit for ARM.

However, the attraction of the products in which ARM is involved is not the only reason I’m bullish on the company.

In addition, ARM is financially sound, having minimal levels of debt and a generous amount of cash. This means that the company looks to be highly sustainable and is not taking excessive risk in its capital structure. Indeed, the returns from the intellectual property developed by ARM are so high that leveraging up the balance sheet does not seem to be necessary at the moment.

Furthermore, ARM has extremely strong cash flow, with the company generating free cash flow of £136 million last year. Although the free cash flow yield is not hugely impressive at 1%, the current share price reflects the high level of growth in earnings (and free cash flow) that are forecast by the market. Therefore, looking past this year, shares seem to offer good value for a high-quality tech company.

So, I’m impressed by the quality and desirability of the products in which ARM is involved, as well as the strong cash flow and net cash position that the company enjoys.

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

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

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