Over the last six months, Avnet’s shares have sunk to $49.04, producing a disappointing 9.8% loss while the S&P 500 was flat. This 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? Check out our in-depth research report to see what our analysts have to say, it’s free.
Even though the stock has become cheaper, 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.
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 sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Avnet’s 3.9% annualized revenue growth over the last five years was tepid. This was below our standard 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 suggests its newer products and services will fuel better top-line performance, it is still below the sector average.
3. 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 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 quality test. After the recent drawdown, the stock trades at 9.7× forward price-to-earnings (or $49.04 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're fairly confident there are better stocks to buy right now. Let us point you toward a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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