The past six months have been a windfall for Avnet’s shareholders. The company’s stock price has jumped 74.6%, hitting $87.24 per share. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is there a buying opportunity in Avnet, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Avnet Not Exciting?
Despite the momentum, we don’t have much confidence in Avnet. Here are three reasons why AVT doesn’t excite us, plus one stock we’d rather own.
1. Revenue Growth Flatlining
Long-term growth is the most important, but within business services, a stretched historical view may miss new innovations or demand cycles. Avnet’s recent performance shows its demand has slowed as its revenue was flat over the last two years. 
2. EPS Took a Dip Over the Last Two Years
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
Sadly for Avnet, its EPS declined by 17.7% annually over the last two years while its revenue was flat. This tells us the company struggled to adjust to choppy demand.
3. Breakeven Free Cash Flow Limits Reinvestment Potential
Free cash flow isn’t a prominently featured metric in company financials and earnings releases, but we think it’s telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
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 bar. After the recent surge, the stock trades at 11.4× forward P/E (or $87.24 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We’re pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at an all-weather company that owns household favorite Taco Bell.
Stocks We Would Buy Instead of Avnet
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