ARM Holdings (Nasdaq: ARMH) Stock Is a Discounted Tech Stock to Buy Now

One of our favorite tech plays at Money Morning, ARM Holdings Plc. (Nasdaq: ARMH) stock, is trading at a discounted price today.

ARMH stock has fallen 11.9% in the last month. But we're still bullish on ARMH shares. In fact, this is a great time to add to your position in ARMH stock.

You see, ARM Holdings designs the semiconductors that are used in Apple Inc. (Nasdaq: AAPL) iPhones and iPads. So when Apple stock tumbled this month, dropping more than 11% since July 20, ARMH shares fell too.

ARMH stockThat wasn't the only reason ARMH stock fell though. In July, ARM reported sales growth of 22%. However, that missed consensus estimates by 2.6%. Again, investors panicked.

But according to Money Morning Defense & Tech Specialist Michael A. Robinson, those were not strong enough reasons for ARMH stock to dip as much as it did.

"To create real wealth, you have to ignore not just hype from the company, but also the noise you often hear coming out of Wall Street," Robinson said. "As far as I'm concerned, this means ARMH stock is 'on sale.'"

Despite the slight revenue miss, the company still grew sales by 22%. And that wasn't all. Earnings jumped 39% and the firm raised its dividend by 25% to $0.20.

ARM was founded in 1990 and is a designer of semiconductors. That's important because it means the company doesn't have to worry about building the semiconductors. Instead, it charges licensing fees to firms that use its designs.

More than 90% of the firm's sales come from licensing. Robinson says it's essentially a "license to print money."

But the licensing arrangement isn't the only reason to be bullish on ARMH stock going forward. Here are three more bullish signs for the company...

Why ARMH Stock Is a Buy Now

The first thing that Robinson points to when discussing ARMH stock's potential is the company's financials.

"Consider that ARM has operating margins of 41%, roughly 36% higher than Apple's and more than three times those of Samsung," he said. "It's sitting on $1 billion in cash and virtually no debt."

Another reason to like ARMH stock is the company's industry. ARM doesn't just supply semiconductor designs to Apple; its products are also in the Galaxy smartphone by Samsung. The company has more than 1,100 licenses with over 300 companies. Those companies have already shipped more than 60 billion chips designed by ARM.

According to Robinson, more than 1.2 billion smartphones are shipped a year, and ARM gets royalties on 95% of them.

"ARM also is a major player in wearable tech - a very fast-moving market," Robinson said. "Forecasters at IDTechEx project sales of wearable electronics will hit $20 billion next year and will be valued at almost $70 billion a decade later."

ARM supplies designs to Fitbit Inc. (NYSE: FIT), Sony Corp. (NYSE ADR: SNE), Samsung, and Pebble Technology Corp. for wearable devices.

The third reason is the company's growth trajectory.

"I've gone through the firm's financials in detail and am projecting earnings per share will grow over the next five years by an average 22%," Robinson said. "I did that to give it a conservative discount from its three-year average of 27%."

By his calculations, it should only take about 3.2 years for ARMH stock to bring a return of 100%.

ARMH stock currently trades at just $42 per share. The $20 billion company also sees an average trading volume of 2.3 million shares per day.

The Bottom Line: ARMH stock has fallen 11% in the last month after a sell-off in Apple shares and a 2% miss in revenue estimates. But this is still a great tech stock to buy. In fact, ARMH stock is "on sale" now following the recent pullback. The company has strong financials, operates in an enormous market, and has a strong growth trajectory.

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Today we want to tell about a company that has been a key part of Apple's and the iPhone's smashing success... And, thanks to that, it's a tech stock currently out of favor on the Street. But this play is more than just an Apple supplier. In fact, it's one of the best "pick-and-shovel" plays out there, because this firm's designs can be found in products made by some 300 companies. You don't want to pass this profit opportunity up...