Tuesday 16 April 2013

Analysis of ARM

A British company that produce low power processors

Company: ARM

Business: Main business is the low power processors that are present in several (all?) Apple products.

Active: They are globally active and interacting with smartphone producers etc.

P/E: 76.8

Share price is from closing day 11/4-13.

The P/E is far, far, far too high for me to even want to touch this company with tweezers. The P/B follow the same trend with its 10 and therefore according to Mr. Yoda sorry Mr. Graham it is a clear no, no on this one. The E/S value is fully acceptable with 28% and the book to debt is outstanding due to that they have so little debt. It is a growing company and in the last five years they have had a yearly growth of 14% which is the double against Intel. if we average the Lynch and Graham evaluation then we could with the high growth accept a P/E of 42. However the current P/E is 77 which would mean that it would be a over 30% per year growth company. ARM is not doing this. They pay a small amount of dividends that represents over 40% over their earnings.
They have solid nice quarter sales that are even slightly growing... maybe... great book value! and their small debt is even better!

Conclusion: ARM has been the hot shot of the last three years. Just like Apple. I would expect it to make the same drop as Apple because in difference to Apple then ARM really is overvalued right now and Apple even at 700 USD was not. I wonder if it is only a matter of time until the pupil follows its master.

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