ARM
Arm Holdings plc American Depositary Shares
$244.74
High-Growth Software
80%
Revenue × Terminal Margin DCF
Strong
·
Conviction
Overvalued
Trading 135.7% above fair value
You pay
$244.74
Bear
$58.38
Fair
$103.84
Bull
$154.47
Bear
$58.38
-76.1%
12% rev growth, 21% terminal margin
Fair
$103.84
-57.6%
19% rev growth, 28% terminal margin
Bull
$154.47
-36.9%
25% rev growth, 32% terminal margin
Key Value Driver
Revenue growth (19%) × margin expansion to 28%
Terminal Value % of EV
57%
Implied Market Multiple
52.3x
Summary
Our base-case estimate uses a discounted cash flow model based on revenue growth and long-run free cash flow margins. We then blend that result with the average analyst price target of $318.50 from 27 analysts, using a 25% weight on analyst consensus. That produces an estimated intrinsic value of $103.84 per share.
Warnings
Stock-based employee pay is 21% of revenue — your ownership shrinks by about 2.0% each year as new shares are issued. Our estimate already accounts for this dilution.
Gross margin of 92% means each dollar of revenue is highly profitable. As the company grows, overhead costs should shrink as a share of revenue, boosting overall profits.
Wall Street's average price target is $318.50 (from 27 analysts). Our estimate is 90% below the consensus -- consider that gap carefully.
Key Risks
- Current FCF misleads — the model values future margins, not today's cash
- SBC dilution is the hidden tax: 2-4% annual share growth compounds fast
- Revenue deceleration is inevitable — the question is when and how steep