Investors bid up Arm after earnings, but that was exactly the wrong decision.
In the week since Arm Holdings (ARM -3.43%) released fiscal year 2024 results, shares of the UK-based semiconductor chip designer have gained 8%, surging past $114 a share. That’s the good news for Arm shareholders.
The bad news is that, according to investment bank Bernstein, buying Arm’s stock after earnings was exactly the wrong thing to do. In a report released Thursday, Bernstein argued that Arm’s stock remains overpriced, and should actually be sold, not bought.
Is Arm Holdings’ stock a sell?
Arm’s results weren’t all bad. True, fiscal 2024 sales grew only 21%, to $3.2 billion, and net income declined 43%, to $0.29 per share. Still, fourth-quarter results showed considerable momentum, with revenue rising 47% and earnings up almost an infinite amount from $0.00 per share a year ago to $0.21 per share in fiscal Q4.
Yes, that’s right. Almost all the money Arm earned last year was earned in the year’s final quarter.
The bad news was that Arm’s performance in 2025 may more closely resemble its performance in 2024 as a whole — and not Q4 2024 in particular. Management guided investors to expect only about 22% sales growth in the new fiscal year (currently underway). Non-GAAP (adjusted) earnings (Arm didn’t give GAAP guidance) will grow a similar 22% to about $1.55 per share.
Commenting on the results on StreetInsider, Bernstein observed that while Arm’s guidance was “strong,” it was no better than was already expected, and “wasn’t the beat and raise that investors seemed to be looking for.”
That could be a problem for Arm going forward. With its stock trading for… (checks notes twice) an astounding 388.5 (!) times trailing earnings, a 22% growth rate doesn’t really justify this stock’s high valuation. Bernstein may have felt compelled to raise its price target to $92 to remain at least within the ballpark of where investor enthusiasm has lifted this stock, but the banker nonetheless reiterated its sell recommendation and was right to do so.
Arm stock is vastly overpriced. And it’s a sell.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
