How ARM Holdings plc (ARMH) Became a 20-Bagger

A confession
I would like to say that I’m an ARM shareholder, and that I’ve held them throughout the good times and bad. But I haven’t. Nevertheless, there are many lessons to be learned from such a story.

Focusing on the business model and how a company makes its money is key. ARM throws off cash, so hasn’t needed to continually tap its shareholders for additional funds. Its share count has more or less doubled since it floated, though, presumably mostly due to acquisitions and share options.

And the best businesses often always seem expensive. When ARM joined the market, it was valued at around 80 times its latest annual profits. And it still is today.

Perhaps the most important lesson is that great business often give you many opportunities to buy them. In particular, you could have picked up ARM in 1998, 2003, and 2008 and earned supersized returns. Indeed, 2008, 10 years after it joined the market, was perhaps the best opportunity of all.

The article How ARM Holdings Became a 20-Bagger originally appeared on Fool.com and is written by Stuart Watson.

Stuart Watson has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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