Positive results from ARM Holdings - but is the share price too high for investors?

As ARM Holdings reports encouraging Q4 figures Sheridan Admans, investment research manager at The Share Centre, explains what they mean for investors. 

“Encouraging figures out today demonstrated ARM Holding’s dominant position in the semiconductor market. Investors should take note of the strong results, which were driven by demand for its chips in tablets and smart phones. With penetration still low the company’s expectation for achieving 200m of revenue in Q1 seems likely. The company also signed a further 25 processor licenses, which should continue to boost revenue growth and support royalties.

“ARM’s technology is used in more than 95% of the world’s mobile handsets and over a quarter of all electronic devices. However, investors should note Intel is attempting to challenge ARM’s monopoly by recently signing up Motorola and Lenovo to use its chips in their hand held devices. This may have an impact over the longer term as the switch from the older style mobile phones to the smart phone is still in its early stages.

“Analysts expect license growth to be a little slower in 2012 as there seems to be no obvious catalyst to drive significant growth in the markets. We anticipate a continued slowdown in consumers’ spending, as well as company IT departments holding back on spending, at least in the first half of 2012. 

“ARM Holdings has strong cash flow and royalty pipeline. However, as the company is trading on a forecast P/E multiple of 52 times next year’s earnings and there is ongoing takeover speculation, we recommend investors wait for some weakness in the price before buying into the stock. In light of these results we are now reviewing our ‘sell’ recommendation on ARM Holdings.”

THIS DATA IS PROVIDED BY THE SHARE CENTRE. THIS IS NOT INTENDED TO CONSTITUTE AN OFFER OR AGREEMENT TO BUY OR SELL INVESTMENTS.

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2012-01-31 13:39:59 © Moneyextra.com