ARM$353.29

Arm shows strong revenue momentum, rising from $2.7bn to $4.9bn over five years, while net income improved to $904m in FY2026 after a sharp FY2024 dip. With no TTM data, the latest full year remains the best reference point. Margins are excellent at the gross level, but operating margin has been volatile, reflecting heavy and rising R&D spending and uneven operating leverage. Earnings durability is mixed: FY2024 was distorted by weak operating profit, negative tax benefit, and swings in other income, while FY2025 and FY2026 benefited from normalization. Assuming a semiconductor IP/licensing model, results are broadly in line with peers, but expense growth and earnings volatility remain key flags.

Arm’s balance sheet looks very strong overall, with liquidity improving materially over time. Total current assets rose from $3.1bn in FY2022 to $6.2bn in FY2026, while current liabilities stayed modest at $1.0bn, leaving ample working capital. Cash and short-term investments increased to $3.6bn, and net cash expanded to $3.2bn, reflecting a very conservative debt profile versus total debt of only $432m. Total liabilities remain low at $2.4bn against $10.7bn of assets, and shareholders’ equity climbed steadily to $8.3bn. The main quality considerations are a large goodwill/intangible base and rising receivables and PPE, but there are no major solvency or liquidity red flags in the reported figures.

Cash generation improved sharply in FY2026, with operating cash flow rising to $1,524 million from $397 million in FY2025, but the series is volatile and not yet consistently strong. FY2025 was a clear weak point, and working-capital movements remain meaningful, especially the large negative “other operating activities” swing of $549 million in FY2026 and -$972 million in FY2025. Free cash flow recovered to $979 million after $178 million last year, though higher capex of $545 million shows reinvestment is becoming more demanding. Capital allocation appears cautious, with no major debt use and modest financing outflows, but stock-based compensation above $1 billion in FY2026 is a notable quality drag. Overall, cash flow is improving, but consistency and quality remain mixed.

Arm shows a very strong liquidity position, with the current ratio rising from 2.2x to 6.0x and the quick ratio from 2.0x to 4.7x, indicating ample short-term coverage. Leverage remains modest, with debt-to-equity near 0.05x and net debt consistently negative, so the balance sheet is conservative. Efficiency is mixed: asset turnover improved from 0.40x to around 0.47x, but inventory data are limited and receivables turnover is unavailable. Profitability is solid but uneven, with ROE, ROA, ROIC, and ROCE all well above average overall, though each has softened from prior peaks. Overall, the company looks financially resilient, but recent return metrics have moderated.

Historical data run through FY2026, while FY2027-FY2028 are analyst-covered forecast years with forward P/E available. Revenue was flat in FY2023, then reaccelerated from FY2024 onward, with sustained low-20% growth before a step-up to 33.5% in FY2028. EPS was more volatile: it dipped in FY2023 and FY2024, then rebounded sharply in FY2025, with another strong jump forecast for FY2027 and continued growth in FY2028, suggesting improving margins and operating leverage. Forward P/E of 161.1x in FY2027 and 115.4x in FY2028 is demanding but better supported by the growth profile. Sentiment is constructive: consensus Buy, 40 analysts on targets, and a recommendation mix that has improved modestly, with Strong Buy and Buy rising and Strong Sell falling.