Sentiment Still Eluding Avnet, Inc. (NASDAQ:AVT)

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 19x, you may consider Avnet, Inc. (NASDAQ:AVT) as an attractive investment with its 13.9x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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Avnet hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for Avnet

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Avnet.

What Are Growth Metrics Telling Us About The Low P/E?

There's an inherent assumption that a company should underperform the market for P/E ratios like Avnet's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 43% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 29% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 16% over the next year. Meanwhile, the rest of the market is forecast to only expand by 13%, which is noticeably less attractive.

With this information, we find it odd that Avnet is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Avnet currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Avnet (1 is a bit unpleasant!) that you need to be mindful of.

Of course, you might also be able to find a better stock than Avnet. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.