Avnet (AVT): Should You Buy, Sell, or Hold After Q4 Results?

Avnet’s Recent Performance: A Closer Look

In the last half-year, Avnet has delivered impressive returns, outperforming the S&P 500 by 16.4%. The company’s share price has risen to $67.34, marking a robust 22.9% gain. Strong quarterly earnings contributed to this momentum, leaving investors to consider their next move.

Should you consider adding Avnet to your portfolio now, or is caution warranted?

Why We’re Not Enthusiastic About Avnet

While shareholders have benefited from Avnet’s recent rally, our outlook remains cautious. Below are three key reasons we’re steering clear of AVT, along with a stock we prefer instead.

1. Declining Revenue Trends

Although long-term expansion is crucial, focusing solely on historical performance can overlook recent shifts in the business landscape. Avnet’s latest results show a significant departure from its five-year trajectory, with annual revenue shrinking by 4.9% on average over the past two years.

Avnet Year-On-Year Revenue Growth

2. Significant EPS Decline

While long-term earnings patterns are informative, examining recent earnings per share (EPS) can reveal important changes. Over the last two years, Avnet’s EPS has dropped by 29.2%—a steeper fall than its revenue—indicating the company has struggled to adapt to weaker demand.

Avnet Trailing 12-Month EPS (Non-GAAP)

3. Limited Free Cash Flow Hinders Growth

Free cash flow, though not always highlighted in financial statements, is a crucial measure as it reflects all operational and capital expenditures. Over the past five years, Avnet’s free cash flow has hovered around breakeven, restricting its ability to reinvest or return value to shareholders.

Avnet Trailing 12-Month Free Cash Flow Margin

Our Verdict

Ultimately, Avnet’s fundamentals do not meet our investment criteria. Despite its recent outperformance and a forward P/E ratio of 11.8 (or $67.34 per share), we don’t see compelling upside at this time. We believe there are more attractive opportunities in the market. Consider exploring one of our top-rated software stocks instead.

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