How many shares do you know that can slump by nearly a third midway through the year, yet still be 30% up going into November?
Well, that’s what happened to ARM Holdings (LSE: ARM) (NASDAQ: ARMH.US) this year — between 21 May and 24 June, the share price crashed 32%. Yet it’s enjoying a resurgence that should see it end 2013 in the winners’ enclosure.
The slide
After reaching a peak of 1,111p on that fateful day in May, the shares went into a slow slide all the way down to 752p just a little more than a month later — taking its year-to-date progress close to a big fat zero percent. Surely it wasn’t just ARM’s analyst and investors day, held on 21 May in London, that did it?
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Well, those were the days when panic over the possibility of US economic stimulus tapering was seriously starting to set in, and high-growth shares like ARM are usually amongst the first to suffer if there’s even a hint of bearish sentiment in the air. And even after the plunge, at 752p ARM shares were still on a forward P/E of 37 based on full-year forecasts at the time.
Right back up again
But since bottoming out, ARM shares have put on a 28% spurt to reach 977p — taking them to a 30% gain for the year to date, up 40% over a rolling 52-weeks, and nicely outstripping the FTSE.
Since then we’ve had interim results, released in July. We saw a 26% rise in second-quarter revenue over Q2 2012 to £171m, with pre-tax profit up 30% to £86.6m and earnings per share (EPS) up 37% to 4.89p. ARM’s interim dividend was lifted 26%, though with annual yields of only around 0.6% it’s not one for income-seekers just yet. At the time, ARM said it “enters the second half of 2013 with a record order backlog and a robust opportunity pipeline“.
Then came third-quarter figures in October and we saw more of the same, with Q3 revenue up 26% to £184m, pre-tax profit up 36% to £92.6m and EPS up 38% to 5.11p. ARM said it “enters the final quarter of 2013 with a record order backlog and a robust opportunity pipeline“.
Full-year forecasts
City analysts are currently predicting a 38% rise in full-year EPS to around 20.6p per share. That would put the shares on a forward P/E of 47, which is more than three times the FTSE average of 14 — that 20.6p EPS would have to grow to more than 60p to bring ARM’s P/E down to match!
Is that feasible? Well, if forecasts prove accurate, ARM will have multiplied its earnings nearly four-fold since 2009. And with no sign of any end to the demand for mobile processor chips — ARM’s designs are used by most of the industry leaders, including Apple for its iPads and iPhones — a repetition is by no means out of the question.
One day ARM’s growth will slow and it will hopefully start to turn into a mature dividend-payer — and the share price will almost certainly slump again.
But it’s surely not going to be this year — no, ARM looks well set to be one of this year’s winners.
