Heading into the company's recent earnings report, Arm Holdings (ARM -0.12%) stock had risen sharply, as investors anticipated strong increases in revenue. Arm delivered on those expectations by reporting record revenues in the March-ending fiscal fourth quarter.
However, the stock still fell after the earnings release, as the results weren't quite good enough to justify the company's expensive valuation. But analysts at Evercorse ISI still like the long-term direction of Arm. The firm kept an outperform (buy) rating on the shares, while lowering the price target from $156 to $145.
What is Arm doing right?
Arm reported strong year-over-year growth in revenue of 47%. Growing adoption of its Armv9 chip technology generated solid growth in royalty revenue.
Arm said its remaining performance obligations also grew a solid 45% year over year, pointing to enormous growth potential. Consistent with its recent performance, the consensus Wall Street estimate has the company's earnings per share growing at an annualized rate of 40% in the coming years.
Is the stock a buy?
Arm should continue to grow over the long term, but management guided for revenue growth to decelerate and come in between 17% and 27% in fiscal 2025. Strong demand for Armv9 in smartphones, auto, and cloud was partially offset by weaker results in Internet of Things.
Given the stock's expensive forward price-to-earnings ratio of 68, the slowing growth may continue to weigh on the shares this year. As the business continues to grow, the stock should eventually climb to the analyst's price target, but investors shouldn't expect the stock to reach the price target anytime soon.
