The year 20XX has witnessed a significant surge in initial public offerings (IPOs) and technology stocks, reaching expensive heights. However, the rest of the market still has some ground to cover in order to keep up with this trend.
One notable player in the market is Arm Holdings (ticker: ARM), whose stock debuted on Thursday. Remarkably, it soared by an impressive 25%, reaching approximately $63 and boasting a market capitalization of around $68 billion. This suggests a valuation of roughly 20 times higher than the projected sales for the upcoming year.
In terms of sales, the company’s prospects indicate revenues of about $2.7 billion in fiscal year 2023. Although this represents a slight decline from the previous year due to a slump in the smartphone market, analysts covering Apple (AAPL) anticipate a low-single-digit percentage increase in smartphone growth by 2024. With this anticipation of consumer demand stabilization and an impending upgrade cycle, Arm’s sales could reach close to $3 billion. However, it is important to note that, in the long run, the company may not experience rapid sales growth as the majority of its sales are derived from smartphone components.
It is worth highlighting that Arm’s valuation stands significantly higher than the S&P 500, which currently reflects a multiple of 2.4 times sales. Analysts project a 5% sales growth for the S&P 500 by 2024, a figure not too different from what is expected for Arm.
Interestingly, this exuberant valuation is even compelling Instacart to revise its targeted offering price. The company recognizes that investors are likely willing to pay a premium, leading Instacart to now consider a level that reflects a market value of $9.9 billion, up from the previous valuation of $9.3 billion.
The upward trajectory of valuations is indicative of a market that has increasingly demonstrated a willingness to pay a premium for technology companies. As evidence, the Nasdaq 100 has surged by over 40% this year, currently trading at approximately 24.5 times the expected earnings per share for the next 12 months. This indicates a rise from the previous multiple of around 20.9 times in January.
Investors seeking growth opportunities outside the tech-dominated Nasdaq 100 have increasingly turned their attention to non-tech stocks and the broader market. One enticing option for such investors is the Invesco S&P 500 Equal Weight exchange-traded fund (RSP). This unique ETF offers true exposure to the diversification potential of all 500 stocks in the S&P 500 index, making it an interesting alternative.
Although the RSP has recently underperformed, there are indications that this trend will soon reverse. With a modest 5% gain this year compared to the S&P 500’s robust 17% surge fueled by tech giants, the RSP’s share price as a percentage of the S&P 500’s price is currently at its lowest level in the past four years. According to Morgan Stanley, this suggests that there is significant room for better gains from here on.
Moreover, the RSP presents an attractive valuation opportunity. Currently trading at roughly 14.9 times earnings-per-share estimates, it offers a compelling 21% discount compared to the S&P 500’s valuation of 18.9 times earnings, as reported by FactSet. This discount was even narrower, just 12%, in November 2022 when tech stocks were falling out of favor.
As a professional copywriter, it is important to explore diverse investment opportunities and encourage clients to consider options like the Invesco S&P 500 Equal Weight ETF (RSP). By stepping beyond traditional tech stocks, investors can potentially unlock greater gains. With the RSP currently offering an attractive valuation and a strong likelihood of future growth, it stands as a viable alternative for those seeking to diversify their portfolios.
Positive Outlook for Earnings Growth
The ETF is poised for potential earnings growth, signaling positive momentum. Analysts anticipate moderate sales growth in the low single digits each year for the next two years, according to FactSet. With the halting of rate hikes, the strain on economic demand is alleviated, facilitating favorable year-over-year revenue comparisons. Consequently, this is expected to contribute to an increase in profit margins. Additionally, the moderation of cost increases, such as wage gains, further augments this outlook.
Promising Earnings-Per-Share (EPS) Growth
As a result of these factors, it is forecasted that the ETF will experience approximately 11% annualized earnings-per-share growth over the upcoming two years. This would amount to reaching $11.55 by 2025.
Favorable Investment Opportunity
With such robust projections, investors can potentially benefit from substantial gains.