Shareholders of Avnet would probably like to forget the past six months even happened. The stock dropped 20.3% and now trades at $43.86. 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? Check out our in-depth research report to see what our analysts have to say, it’s free.
Despite the more favorable entry price, we don't have much confidence in Avnet. Here are three reasons why we avoid AVT and a stock we'd rather own.
Why Is Avnet Not Exciting?
With a century-long history of adapting to technological evolution, Avnet (NASDAQ: AVT) is a global electronic components distributor that connects manufacturers of semiconductors and other electronic parts with businesses that need these components.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, Avnet’s 3.9% annualized revenue growth over the last five years was tepid. This fell short of our benchmark for the business services sector. 
2. Projected Revenue Growth Shows Limited Upside
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Avnet’s revenue to stall. While this projection indicates its newer products and services will catalyze better top-line performance, it is still below average for the sector.
3. 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 37.1%. This tells us the company struggled to adjust to shrinking demand.
Final Judgment
Avnet isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at 8.9× forward price-to-earnings (or $43.86 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're pretty confident there are superior stocks to buy right now. We’d recommend looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
Stocks We Would Buy Instead of Avnet
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