Even though Avnet (currently trading at $51.34 per share) has gained 23.7% over the last six months, it has lagged the S&P 500’s 34.7% return during that period. This may have investors wondering how to approach the situation.
Is now the time to buy Avnet, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free for active Edge members.
Why Is Avnet Not Exciting?
We don't have much confidence in Avnet. Here are three reasons why AVT doesn't excite us and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, Avnet’s sales grew at a mediocre 4.7% compounded annual growth rate over the last five years. This was below our standard for the business services sector.
2. EPS Took a Dip Over the Last Two Years
While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.
Sadly for Avnet, its EPS declined by more than its revenue over the last two years, dropping 34.7%. This tells us the company struggled to adjust to shrinking demand.
3. Breakeven Free Cash Flow Limits Reinvestment Potential
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Avnet broke even from a free cash flow perspective over the last five years, giving the company limited opportunities to return capital to shareholders.
Final Judgment
Avnet isn’t a terrible business, but it doesn’t pass our quality test. With its shares trailing the market in recent months, the stock trades at 11.2× forward P/E (or $51.34 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment. Let us point you toward one of our all-time favorite software stocks.
Stocks We Like More Than Avnet
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