ARM Holdings Surges Through 9 Pounds After Bumper Results

LONDON -- ARM Holdings (LSE: ARM  ) (NASDAQ: ARMH  ) rarely seems to disappoint investors, and today's full-year results were no exception.

Sales rose 16% to 577 million pounds for 2012, breaking the half-billion pound level for the first time. The profit before tax rise was an even more impressive -- a 20% increase to 277 million pounds.

This means ARM has managed to increase its profit margins once again, with operating margins climbing from 45.1% to 45.6%. Other highlights included net cash generation of 267 million pounds, and a 29% increase in the full-year dividend to 4.5 pence.

Outperforming the market
ARM said recent quarters has seen its processor royalty revenue outperforming the wider market by 15%-20%. On this basis, it is expecting first-quarter revenues for 2013 to be around $250 million, which is 20% ahead of the $209 million produced in 2012.

Tablets and smartphones seem to be driving a lot of the growth at present, with ARM saying its customers were "developing products to meet the needs of the post-PC era."

The good news for ARM is that this means its customers are increasingly using its most advanced designs, which has led in an increase in royalty per chip from $0.045 to $0.048. Although that may sound insignificant, when you consider ARM's customers shipped 2.5 billion chips in 2012, it sounds a little more material.

Shares closing in on their all-time high
With these results coming in ahead of analysts' forecasts, the shares got a handy boost in early trading, pushing them as high as 960 pence at one stage. They have slipped back to 923 pence at the time of writing, which values the company at 12.7 billion pounds.

ARM Holdings' share price has been on a tear recently, rising pretty much in a straight line from 500 pence in July 2012. This means that the shares are now getting very close to their all-time high of 1,010 pence, which was set 13 years ago this month.

The art of valuation
Valuing ARM has always been an, um, interesting intellectual exercise. The shares are valued at 63 times profits, based on these latest set of results, and yield a negligible 0.5%.

Looking ahead, 25% profit growth is forecast by analysts for 2013, although that could be revised upwards after these figures. But assuming they aren't, ARM is priced at 51 times profits for 2013.

It would be nice to be transported back in time 10 years, when you could have picked up ARM shares for less than 50 pence. But, in the absence of a time machine, the Fool does have a special free report showing how to pick great growth stocks for the long term. Download it for free today.


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