LONDON -- There are things to love and loathe about most companies. Today, I'm going to tell you about three things to love about ARM Holdings .
I'll also be asking whether these positive factors make this FTSE 100 technology titan a good investment today.
When we think of the big names in technology, we think of companies in the U.S. or Japan or maybe South Korea. But there's one FTSE 100 company -- the only real tech giant we have -- that proudly flies the flag for Britain.
ARM Holdings, which designs, licenses and receives royalties on microchips, has a market capitalization of over 15 billion pounds. In terms of ARM's global significance, it is sufficient to say that the company's low-powered chip designs are found in 95% of the world's smartphones.
Time and again, ARM's results exceed analysts' expectations. It's been going on for years. If you Google "ARM" and "beats forecasts" you'll find pages and pages covering the past decade -- and earlier: In October 2000, the Telegraph was reporting that the company had just topped City forecasts for the 10th quarter in a row.
Once again, for the first quarter of 2013, ARM posted forecast-beating results. Revenue was up 28% and profits soared 58%. The company said, in that same April announcement, that it expected revenue for the full year "to be at least in line with current market expectations."
ARM's stranglehold on smartphones and strong position in other mobile and home markets make for great margins within the business. Furthermore, margins have been growing strongly over the past few years. The operating margin has stepped up in big strides: 18% (2009), 26% (2010), 30% (2011), and 36% (2012).
There's no better sight for shareholders than the combination of rapidly growing sales and expanding margins. In fact, ARM can be ranked as the number one FTSE 100 company, if measured on this virtuous combination.
A good investment?
You'd expect to pay a premium price for a premium business. And ARM is undoubtedly a premium business.
The broader Footsie market is trading on around 16 times forward earnings. How much of a premium over the average should you pay for a premium business? 20 times earnings? 25 times? How about 54 times? At a current share price of 1,090 pence, 54 times earnings is exactly what investors are paying for ARM today. That's extraordinarily high, even compared with the market's historically lofty rating of the company.
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