Life as an investor in ARM (LSE: ARM) (NASDAQ: ARMH.US) continues to be challenging. After falling throughout most of 2014, shares in the company continued their slide in September as they shed 6.5% of their value in just one month.
Indeed, sentiment in ARM seems to be declining despite an upbeat set of recent results. This, then, could prove to be the perfect time to buy a slice of the company for these four key reasons.
A Track Record Of Growth
While there are a number of companies in the FTSE 100 that have a reliable track record of growth in recent years, there are few technology companies that can compete with ARM in this respect. For example, the company has grown earnings in each of the last four years at an annualised rate of 40% and offers investors a potent mix of strong, and yet consistent, growth.
Further Growth Potential
Although 2014 is set to be a slower year, with ARM’s bottom line due to grow by ‘just’ 11%, next year is due to be much better. That’s because earnings are forecast to be 23% higher next year, which is around four times the wider market growth rate and flags up ARM as a strong growth play. Ultimately, this growth should help to lift sentiment and push the company’s share price higher.
Unique Business Model
Such strong growth (past and future potential) is made possible via ARM’s unique business model. For such a large company, it is remarkably nimble due to its focus on intellectual property rather than the manufacturing process. This allows ARM to remain at the forefront of technological change and set the agenda when it comes to where various technology components are headed. This should allow the company to continue to deliver strong earnings growth — even as it increases in size.
Great Value
Clearly, it’s the aim of all investors to buy low and sell high. In ARM’s case, though, the current valuation is more a case of shares trading at a ‘lower’ price rather than a ‘low’ one, since they still command a price to earnings (P/E) ratio of 39.3 even after falling by 17% since the start of the year.
However, ARM has traded on a much higher P/E ratio in the past and, when the previously mentioned growth forecasts for the company over the next couple of years are taken into account, it means that ARM has a price to earnings growth (PEG) ratio of 1.4. This seems to be a very reasonable price to pay for consistent and impressive growth potential.