Avnet ( AVT Quick Quote AVT - Free Report) stock has performed brilliantly over the past year and has the potential to carry on the momentum further. Shares of the company have surged 42.5% compared with the S&P 500’s rally of 36.9% in a year’s time.
However, given the high price, investors often wonder if the stock is overpriced. While the speculations are not absolutely baseless, all stocks riding high are not necessarily overpriced.
Investors, in fact, might lose out on the top gainers in an attempt to avoid the steep prices.
A good stock can maintain the momentum and keep scaling new highs. So, more information on a stock is necessary to understand whether or not there is scope for further upside.
Image Source: Zacks Investment Research Why Avnet Stock Could Sustain the Upward Momentum?
Trades Way Below 52-Week High: Avnet stock currently trades way below its 52-week high, which reflects its potential to go upward. The stock’s closing price of $37.04 on Sep 17 is 18.5% lower than the 52-week high of $45.43 attained on May 25.
Top Rank & VGM Score: Avnet currently sports a Zacks Rank #1 (Strong Buy) and has a VGM Score of B. Our research shows that stocks with a of A or B, when combined with a Zacks Rank #1 or #2 (Buy), offer the best investment opportunities for investors. Thus, the company appears to be a compelling investment proposition at the moment. You can see VGM Score . the complete list of today’s Zacks #1 Rank stocks here Upward Estimate Revisions: All four analysts covering the stock have raised the earnings estimates for fiscal 2022 over the past 60 days. During the same period, the Zacks Consensus Estimate for fiscal 2022 has been revised upward by $1.05 per share. Positive Earnings Surprise History: Avnet has an impressive earnings surprise history. The company outpaced estimates in all of the trailing four quarters, delivering an average earnings surprise of 66.8%. Solid Growth Prospects: The Zacks Consensus Estimate of $4.40 for fiscal 2022 earnings suggests growth of 62.4% from the year-ago reported figure. Moreover, earnings are expected to register 10.5% growth in fiscal 2023 and reach $4.86 per share. The long-term earnings per share growth rate is pegged at 25.4%. Attractive Valuation: Avnet currently trades at an attractive valuation multiple. Comparing the stock with the industry and broader sector on the basis of the forward 12-month price-to-earnings ratio, we see Avnet’s ratio of 8.4X is lower than the industry’s 9.5X and the sector’s 30.2X. Growth Drivers: Avnet is benefiting from the robust demand for its products in the communication and defense market. The latest forecast for the worldwide IT spending by Gartner is a positive for Avnet. The worldwide IT spending is anticipated to be $4.2 trillion in 2021, suggesting an increase of 8.6% from 2020. The research firm forecasts worldwide spending on IT services to be up 9.8%, year over year, to $1.18 trillion this year.
Avnet has been taking major restructuring steps to streamline its business for the past few years. It intends to focus on high growth businesses only, and divest the low profit or loss making businesses. In doing so, the company sold its troubled Technology Solution business to Tech Data Corporation for $2.6 billion during fiscal 2017.
The divestment of the Technology Solution division has enabled Avnet to focus on high growth areas, such as marketing electronic components and related products in the supply chain. The company intends to use its resources to make investments in embedded solutions, Internet Of Things (IoT) and critical digital platforms as well as expand its footprint in newer markets.
Moreover, the company’s continued focus on boosting its IoT capabilities is helping it expand in newer markets and gain customers. On the IoT front, the company has made several partnerships with the likes of
AT&T ( T Quick Quote T - Free Report) as well as acquisitions, such as Dragon Innovation, Premier Farnell and Hackster.io, to enhance its capabilities in this space. Per the company, the aforementioned acquisitions have expanded its reach to more than two million customers as well as an active community of more than 750,000 entrepreneurs, makers and engineers.
Additionally, the company’s cost-saving efforts are aiding profitability. Moreover, Avnet’s expanding partner base is likely to boost top-line growth. Notably, it expects to replace the
Texas Instruments ( TXN Quick Quote TXN - Free Report) revenues with higher-margin revenues by the end of fiscal 2022.
Considering Avnet’s growth prospects, it makes sense to invest for long-term gains.
Another Tech Stock to Consider
Another top-ranked stock to consider in the broader technology sector is
CDW Corporation ( CDW Quick Quote CDW - Free Report) which carries a Zacks Rank #2, at present.
The long-term earnings per share growth rate for CDW is pegged at 13.1%.