Patience is one of the key attributes of a successful investor. The likes of US master Warren Buffett have been known to wait years for the right company at the right price.
Now, while buying stocks at a fair price will tend to pay off over the long term, we all love to bag a real bargain.
A FTSE 100 growth company
ARM Holdings is Britains tech giant, valued at 12bn at a current share price of 857p. The company, which licenses and receives royalties on fast, power-efficient, low-cost microprocessor designs, has been at the heart of the smartphone revolution.
Earnings have increased at a compound annual growth rate of 23% over the last three years and analysts see an increase of the same order for 2015. The table below shows some data on share prices and trailing 12-month P/Es (based on diluted earnings per share) across the three-year period.
|Period||Share price range (p)||Share price average (p)||P/E range||P/E average|
|22/7/14 9/10/14||841 986||913||39.2 46.0||42.6|
|23/4/14 21/7/14||834 960||890||39.9 46.0||42.6|
|4/2/14 22/4/14||875 1,047||971||42.5 50.8||47.1|
|22/10/13 3/2/14||924 1,110||1,001||47.7 57.3||51.7|
|24/7/13 21/10/13||846 1,039||931||47.1 57.8||51.8|
|23/4/13 23/7/13||759 1,097||931||45.6 65.9||55.9|
|5/2/13 22/4/13||866 971||917||58.9 66.1||62.4|
|23/10/12 4/2/13||640 893||771||45.7 63.8||55.1|
|25/7/12 22/10/12||527 599||573||38.5 43.8||41.9|
|24/4/12 24/7/12||469 537||500||35.9 41.1||38.2|
|31/1/12 23/4/12||536 611||582||43.1 49.1||46.7|
|25/10/11 30/1/12||548 645||589||47.0 55.4||50.6|
As you can see, the P/E rating has been coming down since a peak of over 60 about 18 months ago. Lately, were back to a P/E level not see for two years.
Furthermore, ARM has no debt, and the cash on the balance sheet has increased 50% over the two years from 496m to 746m, making todays P/E even more attractive.
At what price a bargain?
I reckon if you can pick ARMs shares up on a P/E of under 40 (and just to remind you, Im talking about a trailing 12-month P/E), youre getting a pretty good bargain for a high-growth tech company.
With ARMs current trailing 12-month earnings per share standing at 21.43p, a P/E of 40 equates to just about bang on the current share price of 857p. So, I have ARM in the bargain basement at the top end as things stand.
As well as high-profile ARM, I believe there are a number of below-the-radar growth shares in the market today for investors seeking exceptional returns.
Indeed, the Motley Fool’s top smaller-companies analyst has recently unearthed one outstanding opportunity that is available at a discount share price right now.
G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended ARM Holdings. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.