Shares might be too hot to handle

first_img KCS-content Tags: NULL whatsapp Share whatsapp Tuesday 1 February 2011 8:55 pmcenter_img Show Comments ▼ IT is hard to find fault with ARM’s results, which beat expectations on just about every count. Revenues of $180m (£112m) were nine per cent ahead of consensus; ebit margins of 41.1 per cent were higher than the expected 39.4 per cent; and adjusted EPS was 2.9p, 27 per cent ahead of consensus at 2.28p.The outlook is also looking good. ARM’s order backlog – a key measure of its future prospects – was up 35 per cent quarter-on-quarter in the last three months of the year. While it is hard to argue with ARM’s performance, the investment case is less clear cut. Several analysts might have nudged up their guidance yesterday, but the stock already trades on around 51.7 times estimated earnings in 2011. That is a stratospheric valuation which is almost impossible to justify on the current facts. The valuation is based on hugely optimistic assumptions about compound growth over the next decade or so. The bulls’ argument goes like this. The number of devices that carry an ARM chip is growing exponentially; virtually every household appliance from washing machine to clock radio now contains a microchip. And the number of ARM chips in mobile phones is also growing fast, hitting 2.5 in 2010 compared to 1.5 four years earlier. The bears still wince at the P/E ratio and it’s easy to see why. No one is doubting how hot ARM is, but its stock should be handled with care. by Taboolaby TaboolaSponsored LinksSponsored LinksPromoted LinksPromoted LinksYou May LikeMoneyPailShe Was A Star, Now She Works In ScottsdaleMoneyPailTotal PastThe Ingenious Reason There Are No Mosquitoes At Disney WorldTotal PastSerendipity TimesInside Coco Chanel’s Eerily Abandoned Mansion Frozen In TimeSerendipity TimesBrake For ItThe Most Worthless Cars Ever MadeBrake For ItLuxury SUVs | Search AdsThese Cars Are So Loaded It’s Hard to Believe They’re So CheapLuxury SUVs | Search AdsBetterBe20 Stunning Female AthletesBetterBeautooverload.comDeclassified Vietnam War Photos The Public Wasn’t Meant To Seeautooverload.comElite HeraldExperts Discover Girl Born From Two Different SpeciesElite HeraldDrivepedia20 Of The Most Underrated Vintage CarsDrivepedia Shares might be too hot to handle Read This Next’A Quiet Place Part II’ Sets Pandemic Record in Debut WeekendFamily ProofHiking Gadgets: Amazon Deals Perfect For Your Next AdventureFamily ProofAmazon roars for MGM’s lion, paying $8.45 billion for studio behind JamesFamily ProofIndian Spiced Vegetable Nuggets: Recipes Worth CookingFamily ProofYoga for Beginners: 3 Different Types of Yoga You Should TryFamily ProofBack on the Rails for Summer New York to New Orleans, Savannah and MiamiFamily ProofChicken Bao: Delicious Recipes Worth CookingFamily ProofCheese Crostini: Delicious Recipes Worth CookingFamily ProofHomemade Tomato Soup: Delicious Recipes Worth CookingFamily Prooflast_img read more