In today's rapidly evolving and fiercely competitive business landscape, it is crucial for investors and industry analysts to conduct comprehensive company evaluations. In this article, we will undertake an in-depth industry comparison, assessing ARM Holdings ARM alongside its primary competitors in the Semiconductors & Semiconductor Equipment industry. By meticulously examining crucial financial indicators, market positioning, and growth potential, we aim to provide valuable insights to investors and shed light on company's performance within the industry.
ARM Holdings Background
Arm Holdings is the IP owner and developer of the ARM architecture (ARM stands for Acorn RISC Machine), which is used in 99% of the world's smartphone CPU cores, and it also has high market share in other battery-powered devices like wearables, tablets, or sensors. Arm licenses its architecture for a fee, offering different types of licenses depending on the flexibility the customer needs. Customers like Apple or Qualcomm buy architectural licenses, which allows them to modify the architecture and add or delete instructions to tailor the chips to their specific needs. Other clients directly buy off-the-shelf designs from Arm. Both off-the-shelf and architectural customers pay a royalty fee per chip shipped.
| Company | P/E | P/B | P/S | ROE | EBITDA (in billions) | Gross Profit (in billions) | Revenue Growth |
|---|---|---|---|---|---|---|---|
| ARM Holdings PLC | 1768.28 | 30.04 | 51.16 | 1.78% | $0.18 | $0.79 | 13.81% |
| NVIDIA Corp | 66.30 | 46.01 | 32.38 | 32.23% | $14.56 | $16.79 | 265.28% |
| Broadcom Inc | 39.69 | 25.55 | 15.61 | 15.3% | $5.3 | $6.41 | 4.09% |
| Advanced Micro Devices Inc | 332.09 | 5.09 | 12.61 | 1.2% | $1.22 | $2.91 | 10.16% |
| Intel Corp | 107.47 | 1.72 | 3.34 | 2.57% | $5.57 | $7.05 | 9.71% |
| Qualcomm Inc | 22.40 | 7.60 | 4.87 | 12.4% | $3.58 | $5.62 | 4.99% |
| Texas Instruments Inc | 23.24 | 8.84 | 8.59 | 8.14% | $1.98 | $2.43 | -12.7% |
| Analog Devices Inc | 33.75 | 2.64 | 8.22 | 1.3% | $1.12 | $1.47 | -22.68% |
| Microchip Technology Inc | 19.37 | 6.33 | 5.34 | 9.66% | $0.75 | $1.12 | 8.74% |
| STMicroelectronics NV | 10.06 | 2.42 | 2.45 | 6.69% | $1.5 | $1.95 | -3.21% |
| ON Semiconductor Corp | 15.86 | 4.26 | 4.20 | 7.37% | $0.79 | $0.94 | -4.06% |
| GLOBALFOUNDRIES Inc | 29.79 | 2.72 | 4.10 | 2.53% | $0.73 | $0.53 | 0.11% |
| ASE Technology Holding Co Ltd | 21.73 | 2.26 | 1.17 | 3.06% | $28.07 | $24.92 | -18.27% |
| United Microelectronics Corp | 8.66 | 1.72 | 2.55 | 4.72% | $29.0 | $20.46 | -24.3% |
| Skyworks Solutions Inc | 18.39 | 2.67 | 3.58 | 3.76% | $0.37 | $0.51 | -9.61% |
| First Solar Inc | 32.71 | 2.45 | 4.90 | 4.35% | $0.37 | $0.38 | 27.37% |
| Lattice Semiconductor Corp | 40.59 | 14.93 | 14.24 | 14.98% | $0.05 | $0.12 | -3.05% |
| Universal Display Corp | 40.83 | 5.67 | 14.30 | 4.36% | $0.08 | $0.12 | -6.34% |
| Rambus Inc | 19.48 | 6.09 | 14.10 | 5.87% | $0.07 | $0.1 | -0.12% |
| MACOM Technology Solutions Holdings Inc | 84.36 | 6.17 | 10.06 | 2.63% | $0.03 | $0.09 | -15.59% |
| Allegro Microsystems Inc | 27.82 | 5.40 | 5.74 | 2.99% | $0.06 | $0.13 | 2.49% |
| Average | 49.73 | 8.03 | 8.62 | 7.31% | $4.76 | $4.7 | 10.65% |
When closely examining ARM Holdings, the following trends emerge:
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The Price to Earnings ratio of 1768.28 for this company is 35.56x above the industry average, indicating a premium valuation associated with the stock.
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With a Price to Book ratio of 30.04, which is 3.74x the industry average, ARM Holdings might be considered overvalued in terms of its book value, as it is trading at a higher multiple compared to its industry peers.
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The stock's relatively high Price to Sales ratio of 51.16, surpassing the industry average by 5.94x, may indicate an aspect of overvaluation in terms of sales performance.
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The company has a lower Return on Equity (ROE) of 1.78%, which is 5.53% below the industry average. This indicates potential inefficiency in utilizing equity to generate profits, which could be attributed to various factors.
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Compared to its industry, the company has lower Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) of $180 Million, which is 0.04x below the industry average, potentially indicating lower profitability or financial challenges.
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Compared to its industry, the company has lower gross profit of $790 Million, which indicates 0.17x below the industry average, potentially indicating lower revenue after accounting for production costs.
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With a revenue growth of 13.81%, which surpasses the industry average of 10.65%, the company is demonstrating robust sales expansion and gaining market share.
Debt To Equity Ratio
The debt-to-equity (D/E) ratio assesses the extent to which a company relies on borrowed funds compared to its equity.
Considering the debt-to-equity ratio in industry comparisons allows for a concise evaluation of a company's financial health and risk profile, aiding in informed decision-making.
By evaluating ARM Holdings against its top 4 peers in terms of the Debt-to-Equity ratio, the following observations arise:
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When comparing the debt-to-equity ratio, ARM Holdings is in a stronger financial position compared to its top 4 peers.
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The company has a lower level of debt relative to its equity, indicating a more favorable balance between the two with a lower debt-to-equity ratio of 0.05.
Key Takeaways
The high PE, PB, and PS ratios of ARM Holdings suggest that the company is currently overvalued compared to its peers in the Semiconductors & Semiconductor Equipment industry. Additionally, the low ROE, EBITDA, and gross profit indicate that ARM Holdings may be facing challenges in generating profits and operational efficiency. However, the high revenue growth rate implies that the company is experiencing strong top-line growth compared to its industry counterparts.
This article was generated by Benzinga's automated content engine and reviewed by an editor.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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