ARMH a buy?

Sometimes tips should be left on the table…

According to a Gartner report, spending on tablets will increase at an annual average pace of 52% through 2015.

ARM Holdings (ARMH) has been riding the wave of tablet and smartphone sales for several years and the water looks fine for the near future.

After reading about Apple APPL changing their computer CPU lineup to go back to ARM chips from INTEL I got all excited that the stock might jump on the news (temporarily) so I started researching.

ARMH just had a boost from Apple computer yesterday when Apple announced that they would be forsaking INTEL for ARM Chips at least for it’s portable/laptop models.  Currently ARM chips are used in the iPad and several other Apple computers/devices.  I am not sure that this change will make a big dent in ARM’s overall bottom line.  I cannot find information about the volume of chip sales or the impact in the overall chip market that this news will bring.

 

According to Wikipedia:

The Apple A4 is a package on package (PoP) system-on-a-chip (SoC) designed by Apple and manufactured by Samsung.^[1] It combines an ARM Cortex-A8 CPU with a PowerVR GPU, and emphasizes power efficiency.^[2] The chip commercially debuted with the release of Apple's iPad tablet;^[3] followed shortly by the iPhone 4 smartphone,^[4] the 4th generation iPod Touch and the 2nd generation Apple TV. It was superseded in the second-generation iPad, released the following year, by the Apple A5 processor.

 

TECHNICAL ANALYSIS:

Daily chart: (courtesy of finviz.com)

Weekly chart:

Monthly chart: Holy cow, should have bought in 2009!  

 

Daily chart (courtesy of Investors Business Daily):

ARM might be bouncing off a daily support level as shown by the above chart. 

The more I look at ARMH the less I like it for a BUY and the more I like it for a SHORT… all the financials (fundamentals) show it is at a TOP… but the charts (technicals) show it is at a turning point.

ARMH did bounce a little on the news Friday and went above it’s 50DMA line

I am looking for ARMH to eventually continue to drop below the 20-DMA line along with the 50DMA line. 

 

FUNDAMENTAL ANALYSIS

With a P/E ratio of 91.47 (IBD shows this as 61) this seems high but this is a relative indicator – sometimes stocks can have very high or very low values and still rocket higher based on the views of investors and funds.

Forward P/E of 51.35 – according to Finviz.com calculations – this value is interpolated based on analysts estimates and we know they are always correct (yeah, right).

I like looking at free cash flow and debt for a company to figure out how long the company could stay afloat without selling anything.

• Cash / share: .35 – not bad, at least they have some cash
• Shares outstanding: 1.35Billion (currently)
• Free cash: 1,035,000,000 * .35 = 362,250,000 (362 million)
• Debt/Equity ratio: 0% – this is great for a company this size = no debt!
• Profit Margin: 30.8% – this is a very high profit margin

Apple is notorious for getting profit margins down due their sheer volume/buying power so ARMH’s profit margins may dwindle if they sell too many chips to Apple but I really don’t see that happening.

• EPS: gained 44% last quarter and Estimated EPS for the year: 23% so it looks like ARMH is handling it’s money well. 
• Sales increased 33% last quarter and looks to gain 7% in the next 3 years (kinda slow growth). 
• Dividend Yield: .4% this is very unusual for a Technology stock – very few Tech stocks give Dividends
• IBD shows a composite rating of 94 (not bad)

 

ARMH is a toss-up for me – the fundamentals look very strong but this may not be the opportune time to BUY.   If I were to invest I would wait for the Apple news to settle down and see if the stock holds above the 50DMA line.  Then start buying as the stock increased in value. 

With recent highs near 32 I think about 32.50 is a good buy in point but would test the waters to make sure this wave is going to make it to shore.