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Good Time To Re-ARM With Stock In iPhone Chipmaker

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You may recognize the name from its ARM chips (processors) that come in all sorts of electronics ranging from mobile handsets, smartphones and digital set top boxes to car braking systems, network routers and more.

In fact more than 20 billion ARM-based products have shipped to date and over 800 processor licenses have been sold in more than 250 countries since ARM was formed in 1990.

ARMH is focused more in the design and licensing of IP, as opposed to the manufacture of the products themselves. This structure allows them to collect royalties on every ARM based product produced and keeps them focused on development of products and services as well as forming partnerships to keep their products flowing into new technologies.

The company is doing something right; ARM technology is used in 90% of smart phones, 80% of digital cameras, and 28% of all electronic devices globally and yes, their chips are found in Apple's iPhones. It competes against microprocessor outfits in both communications and computing, from Qualcomm (QCOM) to Intel (INTC).

The stock can be rather volatile and only recently has it begun to build bullish momentum.  With a P/E of 56, they will need to continue to deliver strong earnings results.

Recent Developments

Processors aren’t their only business; The British Tech Company just announced a joint venture with two European technology companies to develop a new security standard for online transactions for Smartphones, tablets, game consoles and more. Their key is low power consumption, small size and fast processing. Now that ARM processors can run Microsoft Windows, the PC market could be another huge catalyst for the company.  The company expects 100 billion processors to be shipped by 2020.

Financial Profile & Earnings

ARMH is a mid-cap ($13.1 billion) company that is trading at about 56 times forward (expectations for next quarter) earnings. ARMH became a Zacks Rank 1 strong buy on April 3. The chip designer saw annual sales increase 23%, which drove an earnings increase from $0.30 in fiscal year 2010 to $0.38 in fiscal 2011 (diluted).

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ARM has surprised analysts to the upside three quarters in a row with a miss back in March of 2011 at an average of almost +11.37% surprise per report over the past year.  Of the seven analysts who cover ARMH, the consensus is for the company to grow earnings by 22% in the current year (fiscal 2012) and roughly 20% in fiscal 2013.  According to the Zacks Consensus Estimate, expectations are for ARMH to earn 11 cents when they report results on April 25.

The stock is currently trading around $27.50 a share, near the convergence of its where the 50- and 200-day moving averages.

Jared A Levy is the momentum stock strategist for Zacks.com. He is also the editor in charge of the market-beating Zacks Whisper Trader Service.

Read the full analyst report on ARMH