Analysts Agree: ARM Holdings Is A Dead Stock

Arm Holdings plc (ADR) ARMH shares are already down more than 17 percent so far in 2016. However, according to a pair of new analyst reports, investors shouldn’t expect a turnaround from the stock anytime soon.

A.B. Bernstein analyst Pierre Farragu has downgraded Arm to Underperform and believes that the stock will soon face a wave of downside earnings revisions. “We recognize the strength of ARM’s right to make money on a wide and growing addressable market, but believe that the current share price reflects unrealistic levels of penetration across its end markets and/or an unrealistic increase of the average royalty rate ARM charges,” Farragu explained.

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Bernstein projects revenue growth will slow to about 17 percent in 2016 and EPS growth will dip into the single-digits— a combo that will not support the stock’s hefty 30x forward PE.

Global Equities Research analyst Trip Chowdhry also fails to see a growth story for Arm. “ARMH strength continues to remain in Mobile; however, that business is stable – revenue acceleration is impossible,” Chowdhry said following a recent Arm technology conference.

He added that Arm has no traction in the servers business and that investors should remove server growth from their investing theses all together.

Disclosure: The author holds no position in the stocks mentioned.