Is There Still Time To Buy ARM Holdings plc?

Can ARM Holdings plc (LON: ARM) move higher, or are the company’s shares overvalued?

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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

Right now I’m looking at some of the most popular companies in the FTSE 100 and wider market to try and establish if there is still time for investors to buy in.

Today I’m looking at ARM Holdings (LSE: ARM) (NASDAQ: ARMH.US) to ascertain if its share price has the potential to push higher.

Current market sentiment

The best place to start assessing whether or not ARM’s share price has the potential to push higher, is to take a look at the market’s current opinion towards the company, although at present the market is somewhat wary of technology companies.

Indeed, rising valuations have spooked technology investors during the past month or so, which has lead to a broad sell-off in the technology sector. Unfortunately, ARM has not been immune to the sell-off and so far this year, the company’s shares have dropped nearly 11%.

What’s more, some analysts have expressed concern that as the global smartphone market is starting to mature and sales are slowing,  ARM’s sales could start to slow. 

Actually, ARM’s management stated within the company’s full-year 2013 results that performance had been impacted by a lower demand for high-end smartphone chips during the second half of last year.

Additionally, ARM’s larger peer, Intel continues to offer technology of a similar nature and is snatching market share from ARM within the key smartphone and tablet arenas.

Upcoming catalysts

Still, despite the above factors weighing on ARM’s sales, the company’s management remains proactive and is currently trying to expand the firm’s microchip offering by branching out into the enterprise networking market.

Enterprise networking is a fairly essential part of modern day life as mobile networks depend on enterprise systems to create a path for smartphones to connect to the internet. With the number of mobile devices trying to access mobile data growing every day, equipment makers want the fastest enterprise processors with the lowest power consumption. 

At present, ARM only has a 5% share of this market but management believes that the company can snatch up to 30% of the market by 2018. Moreover, City analysts believe that ARM’s push into the networking market could add around $150m per annum to the company’s bottom line.

Valuation

Despite the push into the enterprise networking market, there is one thing that worries me about ARM and that is the company’s current valuation. In particular, ARM currently trades at a historic P/E of 53 and a forward P/E of 41, both of which appear expensive.

What’s of more concern, however, is the fact that ARM’s high valuation leaves little room for error and if the company were to report a lower-than-expected profit, then the company’s shares could slide.  

Foolish summary

So overall, I feel that despite ARM’s push for growth the company’s shares are overvalued at current levels.

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.

Rupert does not own any share mentioned within this article. 

More on Investing Articles

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

Buying 8,617 Legal & General shares would give me a stunning income of £1,840 a year

Legal & General shares offer one of the highest dividend yields on the entire FTSE 100. Harvey Jones wants to…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

£25k to invest? Here’s how I’d try to turn that into a second income of £12,578 a year!

If Harvey Jones had a lump sum to invest today he'd go flat out buying top FTSE 100 second income…

Read more »

Union Jack flag in a castle shaped sandcastle on a beautiful beach in brilliant sunshine
Investing Articles

2 lesser-known dividend stocks to consider this summer

Summer is here and global markets could be heading for a period of subdued trading. But our writer thinks there…

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

Here’s how I’d aim to build a £50K SIPP into a £250K retirement fund

Our writer outlines the approach he would take to try and increase the value of his SIPP multiple times in…

Read more »

Investing Articles

9.4%+ yields! 3 proven FTSE 100 dividend payers I’d buy for my Stocks and Shares ISA

Our writer highlights a trio of FTSE 100 shares with yields close to 10%. He'd happily pop them into his…

Read more »

Mixed-race female couple enjoying themselves on a walk
Investing Articles

Are Raspberry Pi shares a once-in-a-lifetime chance to get rich?

With Raspberry Pi shares surging after a successful IPO, could this UK tech startup offer a long-term wealth creation opportunity…

Read more »

Newspaper and direction sign with investment options
Investing Articles

Huge gains and 9% yields: why now’s an amazing time to be a stock market investor

The stock market’s generating fantastic returns in 2024. Whether you're looking for gains or income, it’s a great time to…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

This steady dividend payer looks like one of the best bargain stocks in the FTSE 100

A yield of 4.7% and a consistent dividend record make this FTSE 100 company look like good value in an…

Read more »