What Happened?
Shares of electronic components distributor Avnet (NASDAQGS:AVT) fell 8.1% in the afternoon session after the company reported its fourth-quarter financial results and issued a weak forecast for the upcoming quarter. Although the company's quarterly revenue and adjusted earnings surpassed analyst expectations, investors concentrated on the significant year-over-year decline in full-year sales and profits. Avnet's profitability also faltered as operating margins contracted for both the fourth quarter and the entire fiscal year. Capping the report, the company's earnings guidance for the next quarter fell below consensus estimates, suggesting to investors that challenges remained.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Avnet? Access our full analysis report here, it’s free.
What Is The Market Telling Us
Avnet’s shares are not very volatile and have only had 7 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.
The previous big move we wrote about was 5 days ago when the stock dropped 3% on the news that a surprisingly weak U.S. jobs report was released, fueling concerns about a slowing economy. The U.S. economy added only 73,000 jobs, falling significantly short of economists' expectations, while figures for May and June were revised down, erasing 258,000 previously reported jobs. The professional and business services industry itself shed 14,000 jobs. This data points to a cooling labor market, fueling concerns of a slowing economy. A weaker economic outlook often leads to reduced corporate spending on key services like IT consulting and professional staffing, which directly impacts the sector's revenue and growth prospects. The report immediately increased investor expectations of an interest rate cut by the Federal Reserve.
Avnet is down 5.3% since the beginning of the year, and at $48.91 per share, it is trading 15.2% below its 52-week high of $57.69 from October 2024. Investors who bought $1,000 worth of Avnet’s shares 5 years ago would now be looking at an investment worth $1,691.
Today’s young investors won’t have read the timeless lessons in Gorilla Game: Picking Winners In High Technology because it was written more than 20 years ago when Microsoft and Apple were first establishing their supremacy. But if we apply the same principles, then enterprise software stocks leveraging their own generative AI capabilities may well be the Gorillas of the future. So, in that spirit, we are excited to present our Special Free Report on a profitable, fast-growing enterprise software stock that is already riding the automation wave and looking to catch the generative AI next.
