4 Stunning Reasons To Buy ARM Holdings plc

ARM Holdings plc (LON: ARM) could have a great future. Here’s why.

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.

ARM Holdings

Life as an investor in ARM (LSE: ARM) (NASDAQ: ARMH.US) continues to be challenging. After falling throughout most of 2014, shares in the company continued their slide in September as they shed 6.5% of their value in just one month.

Indeed, sentiment in ARM seems to be declining despite an upbeat set of recent results. This, then, could prove to be the perfect time to buy a slice of the company for these four key reasons.

A Track Record Of Growth

While there are a number of companies in the FTSE 100 that have a reliable track record of growth in recent years, there are few technology companies that can compete with ARM in this respect. For example, the company has grown earnings in each of the last four years at an annualised rate of 40% and offers investors a potent mix of strong, and yet consistent, growth.

Further Growth Potential

Although 2014 is set to be a slower year, with ARM’s bottom line due to grow by ‘just’ 11%, next year is due to be much better. That’s because earnings are forecast to be 23% higher next year, which is around four times the wider market growth rate and flags up ARM as a strong growth play. Ultimately, this growth should help to lift sentiment and push the company’s share price higher.

Unique Business Model

Such strong growth (past and future potential) is made possible via ARM’s unique business model. For such a large company, it is remarkably nimble due to its focus on intellectual property rather than the manufacturing process. This allows ARM to remain at the forefront of technological change and set the agenda when it comes to where various technology components are headed. This should allow the company to continue to deliver strong earnings growth — even as it increases in size.

Great Value

Clearly, it’s the aim of all investors to buy low and sell high. In ARM’s case, though, the current valuation is more a case of shares trading at a ‘lower’ price rather than a ‘low’ one, since they still command a price to earnings (P/E) ratio of 39.3 even after falling by 17% since the start of the year.

However, ARM has traded on a much higher P/E ratio in the past and, when the previously mentioned growth forecasts for the company over the next couple of years are taken into account, it means that ARM has a price to earnings growth (PEG) ratio of 1.4. This seems to be a very reasonable price to pay for consistent and impressive growth potential.

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.

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended shares in ARM Holdings. 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

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »