For many people, investing is exciting. In the same way as betting on a horse or playing the lottery, you never quite know how your investment in a company is going to pan out. Certainly, you can sometimes win, but other times you can lose, which for many investors is a major reason to get involved.
However, for other investors the really exciting part of investing is in enjoying the benefits of generating substantial profits on your hard-earned cash. In other words, it is the product of investing (i.e. profits) that really gets the pulse racing.
And, on this front, ARM (LSE: ARM) (NASDAQ: ARMH.US) has bags of potential to be an exciting stock. Certainly, its business model is hugely interesting and being involved in intellectual property means that it is at the forefront of design. However, the real appeal with ARM is the capital gain potential that it offers. In fact, ARM has already begun delivering on its appeal during 2015 (its shares are up 20% in the last year) and, with its bottom line set to rise by 73% this year and by a further 20% next year, it has a clear catalyst for further share price rises.
Moreover, ARM trades on a price to earnings growth (PEG) ratio of just 1.5 which, for a company so dominant in its field and which has a super-efficient business model that doesn’t force it to get bogged down in manufacturing, is very appealing.
Of course, ARM’s economic moat is also substantial and, on this front, software company, Emis (LSE: EMIS) also holds considerable appeal. That’s because it offers a service to health care providers which provides it with a highly reliable recurring revenue stream, since it would require a significant amount of upheaval for its customers to switch to one of Emis’ competitors.
As such, Emis is able to generate impressive margins and is expected to grow its bottom line by 14% in the current year. This, combined with a price to earnings (P/E) ratio of 20.7, equates to a PEG ratio of 1.6, which indicates that the company’s share price could move much higher.
Meanwhile, online gambling company, Playtech (LSE: PTEC), has an excellent track record of earnings growth, with it having risen by 74% between 2009 and 2014. And, looking ahead, further growth is being forecast, with Playtech due to deliver a rise in its earnings of 5% this year and 17% next year.
This could prove to be a positive catalyst for the company’s share price over the medium term and, with M&A activity very much a key part of its strategy (for example it acquired contracts-for-difference broker, Ava Trade, this week), its shares could be well-worth buying. That’s especially the case since Playtech trades on a PEG ratio of just 0.9, which indicates that it offers good value for money.
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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended 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.