Avnet (AVT): Buy, Sell, or Hold Post Q4 Earnings?

Over the past six months, Avnet has been a great trade, beating the S&P 500 by 16.4%. Its stock price has climbed to $67.34, representing a healthy 22.9% increase. This was partly due to its solid quarterly results, and the performance 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.

Why Is Avnet Not Exciting?

We’re glad investors have benefited from the price increase, but we don't have much confidence in Avnet. Here are three reasons we avoid AVT and a stock we'd rather own.

1. Revenue Tumbling Downwards

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 marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 4.9% 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 more than its revenue over the last two years, dropping 29.2%. This tells us the company struggled to adjust to shrinking 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’s business quality ultimately falls short of our standards. With its shares topping the market in recent months, the stock trades at 11.8× forward P/E (or $67.34 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. We’d suggest looking at a top digital advertising platform riding the creator economy.

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