Can Amino Techologies plc Rebound 50% Or Should I Buy ARM Holdings plc?

The shares of Amino Technologies (LSE: AMO) dived in October with the release of a trading update containing a profit warning — but they could bounce back.

Stalled growth

The firm makes set-top box IPTV/OTT digital entertainment solutions for in-home multimedia, but sales disappointed. Second-half revenues will be down, the company says, and the revenue result for the full year will likely be the same as the year before. So growth has stalled. The big question now is, could that be a temporary hiatus in progress, or is Amino’s trading niche beginning to erode?

The directors sound upbeat. Revenue and cost synergies, they say, arising from the firm’s recent acquisitions of Entone Inc. and Booxmedia Oy are ahead of plan. Perhaps most importantly of all, the directors intend to keep up the company’s progressive dividend policy and expect net cash balances to meet their expectations at the end of the year.

Good value now?

At today’s 112p share price the forward dividend yield runs at 5.3% and City analysts following the firm expect forward earnings to cover the payout around 1.6 times during 2016. Meanwhile, the forward price-to-earnings (P/E) ratio sits at just under 12. Overall, the valuation seems attractive — if growth returns, or at least if sales do not decline further.

Despite anticipating an (8%) drop in earnings this year the firm expects uplift in earnings of 32% during 2016. The company says it is taking several actions across the business to get sales back on track. If that all works out as hoped, there’s potential for Amino Technologies shares to revisit the 171p or so they touched in July — a 50% uplift from here. We will get an idea of progress with the full-year report, due on 3 December.

Growth on track

When ARM Holdings (LSE: ARM) updated the market in October, the news could not have been more different from Amino Technology’s. The Footsie-listed microchip designer delivered an impressive set of double-digit increases in key indicators and the shares have been elevating ever since.

According to the firm’s chief executive, ARM enjoyed another strong quarter of royalty revenue growth, driven, he says, by premium chip pricing and elevated royalty percentages from recently introduced ARMv8-A  chips.

A well-defended market share

What impresses me most with ARM Holdings is the way the firm seems to keep itself at the cutting edge of emerging technological trends. By being early to the game, ARM seems to be able to leverage its solid market positioning to capitalise on the latest market movements. Right now, the firm is targeting the sensors that will form the Internet of Things, energy-efficient smartphones and high-performance servers.

The top executive reckons the broadening adoption of ARM technology encourages the firm to keep up its investment policy, which is set on developing new products and revenue streams to support long-term growth and returns for shareholders.

At today’s 1072p share price, ARM trades on a forward P/E rating around 31 for 2016. However, the firm seems so entrenched in the digital revolution of our time, and its market share so well defended, and its growth so consistent, that a high valuation seems justified.  

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Kevin Godbold owns shares in ARM Holdings. 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.