A tad heady?

At face value drinks leviathan Diageo (LSE: DGE) can hardly be considered attractive value for money. Thanks to a predicted 1% earnings decline in the year to June, the business currently changes hands on a P/E rating of 21.9 times.

This clearly sails some way above the benchmark of 15 times that indicates ‘conventionally’ reasonable value for money. And Diageo’s earnings multiple remains elevated at 20.2 times for fiscal 2017 despite expectations of a 9% bottom-line uptick.

Investors can’t rely on chunky dividend flows through this period to compensate for Diageo’s inadequate P/E ratios either. Sure, it’s expected to keep dividends rolling higher, medium term, but yields of 3% and 3.2% for this year and next still lag the FTSE 100 average of around 3.5%.

Brand beauty

But Diageo has long trailed most of its blue-chip peers value-wise, and with good reason. Not all stocks are equal regardless of paper projections and investors are willing to pay a bit extra for quality stocks like Diageo.

The market places large importance on Diageo’s portfolio of industry-leading labels like Guinness, Smirnoff and Captain Morgan. These command terrific consumer loyalty like few others, providing investors with confidence that Diageo can keep lifting prices regardless of wider economic pressures. In the current climate, stocks that can boast such brand power can’t be underestimated.

That’s not to say Diageo is without its share of problems as the company battles currency movements and the prospect of fresh sales weakness in emerging markets.

But the firm’s share price still galloped higher in recent months. The market believes Diageo’s expansion into the ‘premium’ segment provides terrific sales opportunities. Furthermore, its expansion across Latin America and Asia is predicted to underpin robust revenues growth as disposable incomes in these geographies march higher.

Share price star

Chipbuilder ARM Holdings (LSE: ARM) has also been unpopular with bargain hunters fixated on near-term valuations. However, those simply snapping up stocks with attractive paper valuations would have missed out big time by overlooking the company.

Someone who had bought it a decade ago would now be celebrating the 600%-plus share price ascent chalked-up to date.

Back to the future

Of course investors today will give scant regard to the company’s previous performance, particularly as its explosive growth story was underpinned by rapid growth in smartphone and tablet PC demand, a phenomenon now receding.

But that’s not to say ARM’s hot growth is drawing to a close. Far from it. The Square Mile expects earnings expansion of 44% and 13% in 2016 and 2017, respectively.

Subsequent P/E ratings of 28.7 times and 25.4 times may — like those at Diageo — appear heady. And dividend yields of 1% for 2016 and 1.2% for next year are hardly exciting either.

But I believe ARM Holdings’ key qualities fully merit such a premium. The company enjoys top-tier supplier status with mobile giants like Apple and Samsung, while its cutting-edge technologies continue to grab market share from competitors. And ARM Holdings is also enjoying accelerating success in new markets like networks, servers and the Internet of Things.

The tech play saw pre-tax profits surge 14% to £137.5m during January-March, it said Wednesday, as the number of chips shipped rocketed 10% to over 4.1m units.

I believe ARM Holdings has what it takes to keep earnings galloping higher and its share price rocketing, putting paid to its reputation as an ‘expensive’ stock selection.

The post Are ARM Holdings plc And Diageo plc Really Worth The Premium? appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Apple. The Motley Fool UK has recommended ARM Holdings and Diageo. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Market Buse

It was former Visa executive Ms Buse who directed the company’s shift away from upfront software licensing to a subscription cloud-based mobile money platform, a strategy that hasn’t paid off yet. Yesterday, Monetise reported a worse-than-expected pre-tax loss of £227.4m against “just” a £63.4m loss in the previous year. Year-on-year revenues slid 6% to £95.1m and seem unlikely to grow this financial year. The company’s share price plunged more than 50% on the news. Over 12 months, it is down 93%.

The days when investors dreamed that this would be a multi-bagging growth machine are a world away. Right now, survival is the priority.

Mobile Money

Monitise once raised hopes by stealing an early march in a boom market. In the US, mobile payment volumes are expected to climb from $37bn this year to $808bn by 2019, according to BI Intelligence. The UK is likely to follow a similar trajectory. The question now is whether Monitise will also climb, or fall by the wayside. With the share price at a six-year low, markets suspect they know the answer. 

The rapid growth of mobile payments has turned out to be more of a blessing and a curse. Monitise has found itself overshadowed by global behemoths such as Apple, Google and Samsung whose pockets seem bottomless in comparison to Monitise’s threadbare linings. It is down to its last £88.2m.

Burn Baby Burn

Monitise also appears to have made mistakes, reportedly souring relations with investor Visa by also launching a tie-up with rival MasterCard. The company’s share price took a hit when Visa cut its stake in July. US hedge fund Omega Advisors has also been rushing towards the exits.

I had hopes that Monitise would become that rare breed, a British technology powerhouse, but maybe we have to accept that we just can’t compete at this level. Hope springs eternal and some analysts are still looking at the bright side, noting that its market cap of £61m is worth less than its remaining £88m cash pile. Just remember, that cash pile is rapidly running down — it was worth £146m just one year ago, although the burn rate is expected to slow.

Off The Money

Time and money are against new boss Cameron as he tries to tempt new customers into the cloud. Just two have signed up so far and neither has rolled out the technology. This doesn’t look good. Future customers may be put off by the company’s deepening plight. So, it seems, have potential takeover bidders.

Buse isn’t the first Monitise casualty. Founder and co-chief executive Alastair Lukes left following a strategic review last year. Hopeful contrarians who decide that now is a good time to buy must accept the danger that they may become a casualty as well.

The post Should Investors In Monitise PLC Now Abandon All Hope? appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK owns shares of Monitise. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.