LONDON -- It's always worth keeping an eye on the earnings forecasts for your favorite companies, especially if you use forward P/E ratios to gauge when to buy and when to sell your shares.
You never know, if City brokers have been revising their projections of late, your investments may not be as cheap -- or expensive -- as you think.
Today I'm looking at the earnings-per-share forecasts for ARM Holdings
The consensus for 2012 is for earnings per share of 14 pence, which puts the 586 pence shares on a lofty forward P/E of 42.
However, the estimates suggest earnings may rise to 18 pence per share for 2013 and climb again to 21 pence per share for 2014.
Earnings may then advance further to 25 pence per share for 2015 with another rise to 33 pence per share for 2016, at least according to City analysts.
So the expected compound earnings growth rate between 2012 and 2016 is a super 24%.
The data from S&P Capital IQ also indicates a steady rise in ARM Holdings' revenue over the next four years.
All told, the forecasts paint a bright future for ARM Holdings, which may explain why investors are prepared to pay a high immediate P/E for the shares today. For what it's worth, the P/E based on forecasts for 2016 is 18.
Whether these projections make ARM Holdings a buy, a hold, or a sell is of course up to you. To put the company's multiple into perspective, the FTSE 100, at 5,834, trades on a P/E of around 11.
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David Kuo does not own shares in ARM Holdings. The Motley Fool has a disclosure policy.
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