Buy, sell or hold? Share Centre gives its view on Arm Holdings

11th February 2015

As Arm Holding’s report an increase in revenue and net profit. Helal Miah, investment research analyst at The Share Centre, explains what this means for investors…

  • Arm Holding to benefit from increasing consumer demand for technology
  • Recent share price rise and price to earnings multiple means the stock is at fair value
  • The Share Centre currently lists Arm Holdings as a ‘hold’ for investors

Arm Holding’s Q4 trading update should please the market as revenues were up 19% to £225.9m and net profit jumped to £72.8m. These encouraging numbers were on the back of a very good quarter in terms of licences awarded to manufacturers – 53 in total leading licensing revenues to increase by 30%. The full year numbers were also good with revenues up 11% at £795m and the net profits up to £255m from £105m in 2013.

With the high number on licensing awards in Q4, this should lead to improved royalty revenues in the coming quarters. The management expect that Q1 revenues will grow by 10% year on year.

For investors, Arm has a great positioning in the market and is set to benefit from increasing consumer demand for technology. It dominates the processor market for phones and increasing penetration in other segments of the sector through diversification.  However, we currently recommend the stock as a ‘hold’ because the recent increase in its share price and a price to earnings multiple in excess of 35 times, means that the growth prospects are already priced in.

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