Flextronics: Avoid This Stock For Now
Christopher is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Being in the tough technology manufacturing business, Flextronics (NASDAQ: FLEX) is not in the best space possible. Its inconsistent profitability over the past 5 years shows that. The valuation metrics differ quite significantly on the stock with an unclear conclusion.
Flextronics' trailing 5 year valuation metrics suggest that the stock is fairly valued as there is a mixed message about the three valuation metrics compared to their 5 year ranges. Flextronics' current P/B ratio is 2.3 and it has traded in a range of 0.7 to 3.4 over the past 5 years. Flextronics' current P/S ratio is 0.17 and it has traded in a range of 0.06 to 0.41 over the past 5 years. Flextronics' current P/E ratio is 10.69 and it has traded in a range of 7.2 to 16.0 over the 2 past years.
The forward valuation for the stock differs from the trailing. Flextronics is currently trading at about $7 a share with analysts expecting EPS of $1.05 next year, an earnings increase of 27% y/y, for a forward P/E ratio of 6.6. Taking a look at the company's publically traded comparisons will give us a better idea of the stock's relative valuation. Jabil Circuit (NYSE: JBL) is currently trading at about $23 a share with analysts expecting EPS of $2.92 next year, an earnings increase of 14% y/y, for a forward P/E ratio of 7.9. Celestica (NYSE: CLS) is currently trading at about $9 a share with analysts expecting EPS of $1.19 next year, an earnings increase of 10% y/y, for a forward P/E ratio of 7.4. Plexus (NASDAQ: PLXS) is currently trading at about $37 a share with analysts expecting EPS of $2.87 next year, an earnings increase of 22% y/y, for a forward P/E ratio of 12.9. The mean forward P/E of Flextronics's competitors is 9.4 which suggests that Flextronics is undervalued relative to its publically traded competitors.
Analysts are not strongly in one corner or the other with their middle of the road upside target. The consensus price target for the analysts who follow Flextronics is $9. That is upside of 23% from today's stock price of $6.97 and suggests that the stock is fairly valued at these levels. This also suggests that the stock has limited upside and should be avoided at its current stock price.
Analysts have done a decent job forecasting the company’s results. Flextronics has failed to beat EPS estimates in the past 4 quarters. The company's EPS figures have come in between -2 cents and 0 cents from consensus estimates or about -10% to 0% from analyst estimates. The company's earnings come been relatively close to consensus estimates which suggests that analysts are good at projecting the company's results and share upside from earnings surprises will be limited.
The last metric agrees with analysts. According to the cash flow metric provided by Dividend Kings, Flextronics is worth $7 a share versus its current stock price of $6.97 a share. This suggests that the stock is fairly valued.
The top two funds that own Flextronics are American Funds Growth Fund of Amer A, which owns 40.1 million shares or 5.62% of the shares outstanding, and American Funds NVIT Growth-Income II, which owns 15.5 million shares or 2.17% of the shares outstanding. The top two institutions that own Flextronics are Capital Research Global Investors, which owns 81.1 million shares or 11.38% of the shares outstanding, and PRIMECAP Management Company, which owns 45.8 million shares or 6.42% of the shares outstanding.
Looking at the price action, Flextronics is one of the companies that has dragged down the broader market over the past year. It is down -14% over the past year, underperforming the S&P 500, which is up 3.7%. Looking at the technicals, the stock is currently above its 50 day moving average, which sits at $6.18 and above its 200 day moving average, which sits at $6.02.
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