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ARM Holdings (LSE:ARM) share price, which has been doing admirably well of late, fell by more than 4% in trading today, based, it would appear on a single analyst’s rating downgrade. It must be quite a heady feeling to wield that much power over the minds of investors.
I find it a bit incredulous that one analyst’s rating of “underperform” – in this case, Sanford C. Bernstein – could weigh that much on a stock’s performance, especially when Credit Suisse reiterrated ARM as “outperform” the previous day. Frankly, I don’t know if it’s the analyst’s fault or the broker and investors showing signs of anxiety ahead of a bubble that they perceive is going to burst.
When you take a look at the current overall ratings, 65% rate ARM as “buy” or “strong buy” (11 and six, respectively), 27% rate ARM as “hold,” and only 7% rate the company as “underperform or sell.” I’m not here to promote ARM Holdings, although I do strongly admire their market strategy and operations. I am writing because I do not understand the insanity of knee-jerk reactions that have also made today the heaviest trading day of the week for ARM.
Even looking at the analysts’ price targets, a negative response to Bernstein’s downgrade makes no sense:
- High: 1,550.00
- Low: 700.00
- Median: 1,250.00
ARM shares are currently trading at 1,095.00 as the market prepares to close for the week, whilst shares have been trading near or above 1,100.00 all week, until this morning.
I doubt that my observations would be adequate to stop the insanity, but allow me to share some recent insights in ARM that could get people’s eyes off of the analysts and focused on the company into which they are investing.
These are some of the facts that make for wiser investment decisions where ARM is concerned:
- ARM’s total addressable market share is expected to grow by 67% to $25 billion by 2020.
- ARM expects royalties from premium smartphone sales to increase by a multiple of 20 by 2020.
- ARM’s strategic pricing assesses higher royalties on premium chips. As a matter of course, all else being equal, the continued transition from voice-only phones to more powerful smartphones will ensure a great royalty revenue stream.
- ARM’s overall market share has increased by 118% since 2007.
- ARM’s current market share includes:
- 95% of automotive app processors
- 90% of the hard disk and SSD market
- 85% of app processors
- 65% of computer peripherals
- ARM’s strategic plan includes gaining 20% of the server chip market by 2020.
- PayPal is deploying ARM servers
- HP is now shipping 64-bit ARM servers
- Lenovo is building a prototype ARM server
There is so much to like about ARM, it is hard to find something not to like. Underperform? Are they serious? What have they been smoking? But, it is not my purpose to criticize. Rather it is, as I stated earlier, to restore some sense of reality and sanity to those who would trade on one analyst’s downgrade without considering the bigger picture. I hope that it does.
Lou Gutheil does not hold any financial interest in ARM.
Image courtesy of suphakit73 at FreeDigitalPhotos.net
