Earnings look ahead: ARM Holdings

ARM’s revenue and profits are rising but traders are worried about an oversaturation in the smartphone market. 

ARM Holdings
Source: Bloomberg

ARM Holdings will reveal its full-year earnings on 10 February, and traders are anticipating revenue of £962 million and adjusted net income of £428 million.

These estimates equate to a 21% rise in revenue and a 25% jump in adjusted net income. The company will also announce its fourth-quarter figures on the same date, and investors are anticipating revenue of £262 million and adjusted net income of £111 million, which compares with the third-quarter revenue of £243 million and adjusted net income of £107 million.

The company continues to post an increase in revenue and profits, but concerns are growing that an oversaturation in the smartphone market will have a negative knock-on effect to the business. In the latest quarter, ARM derived the majority of its revenue from royalties, and last month Apple revealed its slowest growth rate of iPhone sales since it was launched.

This has traders worried about the company’s future earnings potential. ARM is suffering from low single-digit growth in its licensing division, and this is adding to the traders concerns. 

High valuation 

  12 month trailing P/E 12 month forward P/E P/B value Dividend yield 5 year dividend growth
ARM Holdings 43.62 31.17 8.22 0.92% 24%
Intel Corp 12.34 11.87 2.21 3.58% 8.44%
Advanced Micro Devices Inc N/A

N/A

N/A N/A
NVIDIA Corp 19 17.15 3.18 1.74% N/A
FTSE 100 24.28 14.84 1.62 4.64% N/A

 

ARM Holdings has a high price/earnings ratio compared with other technology companies and when you factor in the high price/book value ratio it indicates the company is overvalued. The dividend yield may not be the most competitive, but its growth rate is impressive.

Earnings versus estimates

Out of the past eight full-year numbers releases from ARM Holdings, the company exceeded the revenue estimate 50% of the time and topped the earnings expectation 87.5% of the time. Volatility is to be expected on the day of the announcement, as the stock moved on average 3.52% on the day of the release, with 87.5% of the moves were positive. 

rev

There is a high correlation between the revenue performance and the share price movement on the day of the announcement.

eps

There is also a strong correlation between the earnings per share (EPS) performance and the share price movement on the day of the results being reported.

Banks are bullish 

  Buy ratings Hold ratings Sell ratings
ARM Holdings 17 7 1
Intel Corp 27 17 3
Advanced Micro Devices Inc 4

17

8
NVIDIA Corp 12 17 2

 

Equity analysts are very bullish on ARM Holdings, and it has the highest percentage (68%) of buy ratings attached to it and the lowest percentage (4%) of sell recommendations associated with it. Investment banks have an average price target of £11.85 for ARM Holdings, and that is 27% above the current price.

After trending lower from December, ARM’s share price has been rangebound (£9.26–£10.25) since late January and the stock is currently at the bottom of the range. Traders will be paying close attention to the stock as we could see a breakout of the range it has been stuck in recently.

While the stock holds above £9.26 it is possible it will remain within the range and moves higher will encounter resistance at £9.50, £9.78 and £10.25. If we see an hourly close above £10.25 it would be a bullish indicator and the next major resistance level on the horizon is £10.53. An hourly close below £9.26 would be a bearish indicator and the next big levels of support in sight are £9.01 and £8.71.

arm

Denna information har sammanställts av IG, ett handelsnamn för IG Markets Limited. Utöver friskrivningen nedan innehåller materialet på denna sida inte ett fastställande av våra handelspriser, eller ett erbjudande om en transaktion i ett finansiellt instrument. IG accepterar inget ansvar för eventuella åtgärder som görs eller inte görs baserat på detta material eller för de följder detta kan få. Inga garantier ges för riktigheten eller fullständigheten av denna information. Någon person som agerar på informationen gör det således på egen risk. Materialet tar inte hänsyn till specifika placeringsmål, ekonomiska situationer och behov av någon specifik person som får ta del av detta. Det har inte upprättats i enlighet med rättsliga krav som ställs för att främja oberoende investeringsanalyser utan skall betraktas som marknadsföringsmaterial.