This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Can a Bionic ARM Still Pay Off?

Stocks in this article: ARMHMSFTINTCGOOG

NEW YORK ( TheStreet) -- It is broadly understood that chip stocks have become one of the best derivative plays on the market -- and for good reason. The growing popularity of smartphones and mobile devices from Apple (AAPL) and Google (GOOG) have made household names out of once-obscure players such as TriQuint (TQNT) and Cirrus Logic (CRUS) while also sending dominant names such as

Qualcomm

(QCOM) to new heights. The surprise performance of these chips shows how strong Apple's famed "halo effect" really is.

One name that has become very prominent is ARM Holdings (ARMH). Unlike rivals that also get rewarded from exposure to Apple devices, ARM has decided to play the role of the "sneaky diplomat" by also licensing its chip technology to the highly anticipated launch of Microsoft's (MSFT) Windows 8.

But the question is, for a stock that is already grossly expensive, how much more upside is there for ARM, regardless of how successful Microsoft's launch might be? Or more appropriately, can a "Windows effect" produce more than an ARM's-length of growth -- at least to the extent it can justify a higher stock price?

As impressed as I am with ARM's business model and the fact that it is able to forge deals with competing companies, its stock price suggests it is priced for perfection and for me this has always been a great source for concern, much less thinking Windows 8 can wring out some untapped value.

Its enormous price-to-earnings ratio of 55 implies that the company already has huge expectations to fulfill. I just don't think that Windows 8 will be enough to help it grow into that multiple -- at least not with any noticeable urgency. That said, I wouldn't completely rule out the company's investment worthiness -- at least not without a look at its recent earnings results.

Follow TheStreet on Twitter and become a fan on Facebook.

The Quarter That Was

For the period ending in March, the company reported revenue of $209.4 million -- representing an annual increase of 13% -- well ahead of analysts' estimates of $201.2 million. The company also beat estimates on earnings per share of 16 cents.

For the quarter, gross margin arrived at 94%, 30 basis points better than the prior-year quarter. Operating margin was 37.9%, 12.9% better than the prior-year quarter, while net margin registered at 28.2% or an improvement of 9.7% sequentially.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,390.52 +195.10 1.13%
S&P 500 0.00 -2.75 -0.14%
NASDAQ 4,630.7410 +64.6030 1.41%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs