Arrow Electronics, Inc. (NYSE:ARW), which is in the electronic business, and is based in United States, saw a decent share price growth in the teens level on the NYSE over the last few months. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Let’s examine Arrow Electronics’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
What's the opportunity in Arrow Electronics?
The stock is currently trading at US$80.50 on the share market, which means it is overvalued by 23% compared to my intrinsic value of $65.31. This means that the opportunity to buy Arrow Electronics at a good price has disappeared! But, is there another opportunity to buy low in the future? Given that Arrow Electronics’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.
Can we expect growth from Arrow Electronics?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with an expected decline of -1.0% in revenues over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Arrow Electronics. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? If you believe ARW is currently trading above its value, selling high and buying it back up again when its price falls towards its real value can be profitable. Given the uncertainty from negative growth in the future, this could be the right time to de-risk your portfolio. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on ARW for some time, now may not be the best time to enter into the stock. Its price has risen beyond its true value, on top of a negative future outlook. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Should the price fall in the future, will you be well-informed enough to buy?
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Arrow Electronics. You can find everything you need to know about Arrow Electronics in the latest infographic research report. If you are no longer interested in Arrow Electronics, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
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