Evaluating ARM Holdings Against Peers In Semiconductors & Semiconductor Equipment Industry

Amidst today's fast-paced and highly competitive business environment, it is crucial for investors and industry enthusiasts to conduct comprehensive company evaluations. In this article, we will delve into an extensive industry comparison, evaluating ARM Holdings ARM in comparison to its major competitors within the Semiconductors & Semiconductor Equipment industry. By analyzing critical financial metrics, market position, and growth potential, our objective is to provide valuable insights for investors and offer a deeper understanding of company's performance in 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 131.81 12.62 20 2.54% $0.15 $0.64 -2.46%
NVIDIA Corp 101.92 37.90 32.17 23.79% $7.41 $9.46 101.48%
Taiwan Semiconductor Manufacturing Co Ltd 15.90 4.69 6.72 5.8% $341.62 $260.2 -9.98%
Broadcom Inc 27.30 16.58 10.46 14.98% $4.91 $6.16 4.87%
Texas Instruments Inc 18.23 8.65 7.41 10.99% $2.39 $2.91 -13.07%
Qualcomm Inc 14.53 5.99 3.24 8.93% $2.41 $4.66 -22.72%
Analog Devices Inc 23.30 2.38 6.80 2.44% $1.53 $1.96 -1.07%
Microchip Technology Inc 18.01 6.21 4.94 9.99% $1.12 $1.56 16.55%
ON Semiconductor Corp 20.50 5.54 4.81 8.59% $0.85 $0.99 0.45%
STMicroelectronics NV 8.99 2.61 2.28 7.07% $1.57 $2.12 12.74%
GLOBALFOUNDRIES Inc 20.60 2.92 3.93 2.31% $0.63 $0.53 -7.43%
United Microelectronics Corp 7.43 1.83 2.35 4.59% $28.73 $20.25 -21.87%
ASE Technology Holding Co Ltd 12.04 1.93 0.85 2.82% $25.7 $21.74 -15.06%
First Solar Inc 104.88 2.71 5.46 2.86% $0.26 $0.31 30.55%
Skyworks Solutions Inc 14.52 2.55 3.04 3.37% $0.39 $0.46 -13.09%
Lattice Semiconductor Corp 51.40 18 14.57 9.29% $0.06 $0.13 17.79%
Universal Display Corp 37.29 5.74 12.71 3.75% $0.07 $0.11 7.33%
Rambus Inc 34.27 6.72 13.70 19.78% $0.03 $0.1 -1.07%
Allegro Microsystems Inc 24.41 5.62 5.64 6.11% $0.08 $0.16 27.8%
MACOM Technology Solutions Holdings Inc 18.21 6.08 8.26 1.31% $0.03 $0.09 -13.78%
Average 30.2 7.61 7.86 7.83% $22.09 $17.57 5.29%

After examining ARM Holdings, the following trends can be inferred:

  • Notably, the current Price to Earnings ratio for this stock, 131.81, is 4.36x above the industry norm, reflecting a higher valuation relative to the industry.

  • With a Price to Book ratio of 12.62, which is 1.66x 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.

  • The stock's relatively high Price to Sales ratio of 20.0, surpassing the industry average by 2.54x, may indicate an aspect of overvaluation in terms of sales performance.

  • The company has a lower Return on Equity (ROE) of 2.54%, which is 5.29% below the industry average. This indicates potential inefficiency in utilizing equity to generate profits, which could be attributed to various factors.

  • With lower Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) of $150 Million, which is 0.01x below the industry average, the company may face lower profitability or financial challenges.

  • The company has lower gross profit of $640 Million, which indicates 0.04x below the industry average. This potentially indicates lower revenue after accounting for production costs.

  • The company's revenue growth of -2.46% is significantly lower compared to the industry average of 5.29%. This indicates a potential fall in the company's sales performance.

Debt To Equity Ratio

The debt-to-equity (D/E) ratio indicates the proportion of debt and equity used by a company to finance its assets and operations.

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:

  • Compared to its top 4 peers, ARM Holdings has a stronger financial position indicated by its lower debt-to-equity ratio of 0.05.

  • This suggests that the company relies less on debt financing and has a more favorable balance between debt and equity, which can be seen as a positive attribute by investors.

Key Takeaways

ARM Holdings has a high PE ratio, indicating that its stock price is relatively high compared to its earnings. The high PB ratio suggests that the stock is trading at a premium compared to its book value. The high PS ratio indicates that the stock is trading at a premium compared to its sales. On the other hand, ARM Holdings has a low ROE, suggesting that it is not generating a high return on its shareholders' equity. The low EBITDA and gross profit indicate that the company's profitability is relatively low. Additionally, the low revenue growth suggests that ARM Holdings is experiencing slow growth in its sales.

This article was generated by Benzinga's automated content engine and reviewed by an editor.

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