Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Avnet, Inc. AVT stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Avnet has a trailing twelve months PE ratio of 11.6, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 18.23. If we focus on the long-term PE trend, Avnet’s current PE level puts it above its midpoint of 10.46 over the past five years. However, the current level stands well below the highs for the stock, suggesting that it can be a solid entry point.
Further, the stock’s PE also compares pretty favorably with the Zacks Computer and Technology sector’s trailing twelve months PE ratio, which stands at 20.39. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Avnet has a forward PE ratio (price relative to this year’s earnings) of just 11.1, so it is fair to say that a slightly more value-oriented path may be ahead for Avnet stock in the near term too
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, Avnet has a P/S ratio of about 0.26. This is lower than the S&P 500 average, which comes in at 3.32 right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.
Broad Value Outlook
In aggregate, Avnet currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Avnet a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Avnet is just 0.87, a level that is lower than the industry average of 1.14. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate.
What About the Stock Overall?
Though Avnet might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth Score of B and a Momentum Score of F. This gives AVT a Zacks VGM score — or its overarching fundamental grade — of A. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been disappointing. The current year has seen one estimate go down with no upward movement in the past sixty days. Further, the next year has seen one downward with no movement in the opposite direction in the same time period.
This has had a mixed impact on the consensus estimate as the current year consensus estimate has inched down 0.24% in the past two months, while the next year estimate has increased 0.22%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Avnet, Inc. Price and Consensus
Avnet, Inc. Price and Consensus | Avnet, Inc. Quote
Even though Avnet has a stable estimates trend, the stock has just a Zacks Rank #3 (Hold), which is why we are looking for in-line performance from the company in the near term.
Avnet is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Although the stock has a strong industry rank (among Top 36% of more than 250 industries), with a Zacks Rank #3 it hard to get too excited about the stock. Further, over the past two years, the Electronics - Parts Distribution industry has clearly underperformed the overall market, as you can see below:
So, value investors might want to wait for the broader factors and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
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