Avnet (AVT) Could Be 7% Undervalued Following Margin Expansion Narrative

Avnet (AVT) has become more interesting for investors after a strong run, with the stock up about 101% year to date and roughly 100% over the past year.

Recent trading has cooled slightly, with a 7 day share price return down 6.43% and a 1 day move lower of 0.20%. However, Avnet still carries strong momentum, as shown by a 90 day share price return of 15.47% and a 5 year total shareholder return of 198.15%.

Compare how Avnet’s surge aligns with other electronic and tech distributors by reviewing our hand picked list of solid balance sheet and fundamentals (25 results) in the same space.

After a run that has already rewarded holders, the real tension around Avnet now is simple. Is the heavier lift behind the stock, or does the current valuation still leave meaningful upside on the table?

Most Popular Narrative: 6.5% Undervalued

On the most widely followed view, Avnet screens as modestly undervalued, with a narrative fair value of $106.25 compared with the last close at $99.36. That gap rests on the idea that current AI, data center and supply tightness trends can translate into stronger earnings and returns over time.

Improving operating leverage and capital efficiency are now more visible, with adjusted operating income reported to be growing about 2.6x faster than sales, SG&A as a percentage of gross profit trending toward a sub 60% target and return on working capital reaching 19%. Together, these factors create room for further operating margin expansion and support for adjusted EPS growth.

See why 11 investors see Avnet as 6% undervalued.

Result: Fair Value of $106.25 (UNDERVALUED)

Still, the Avnet story can break if pressure on gross margins from Asia and memory exposure proves sticky, or if recent share gains run ahead of those earnings assumptions.

Find out about the key risks to this Avnet narrative.

Another View: Our DCF Model Sees Avnet As Expensive

The narrative fair value paints Avnet as 6.5% undervalued. Our DCF model tells a different story. On Simply Wall St calculations, the stock at $99.36 sits well above an estimated future cash flow value of $24.11, which screens as clearly overvalued on that method. Which lens do you trust more for a long term call?

To understand how that gap between price and cash flow value is built up, take a closer look at the mechanics behind our model: Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Avnet for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 29 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Mixed messages on Avnet's value story today. If you want to move fast and build your own stance on the opportunity and the threats, start by weighing the 3 key rewards and 3 important warning signs.

Looking for more investment ideas beyond Avnet?

If Avnet has sharpened your focus on where capital can work harder, do not stop here. Broader idea hunting now can help shape your next steps.

• Explore companies that combine quality fundamentals with appealing prices through our 29 high quality undervalued stocks.
• Review a curated set of payout heavyweights using the 8 dividend fortresses.
• Focus on resilient businesses with strong financial footing via the 31 resilient stocks with low risk scores.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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