I consider Flextronics International (NASDAQ:FLEX) an excellent combination of superb value and high growth tech stock. FLEX has compelling valuation metrics and strong earnings growth prospects. The company said that it is committed to 5 -10% annual net income growth and it continues to use its strong cash flow generation to return consistently value to its shareholders through repurchasing shares. For fiscal 2015 Flextronics spent $416 million buying back almost 7% of its shares, representing an allocation of 75% of its fiscal 2015 free cash flow. In my opinion, FLEX's stock is a good long-term investment.
Latest Quarter Results
On April 29, Flextronics reported its fourth quarter fiscal 2015 financial results, which beat EPS expectations by $0.02 (8.0%). The company showed earnings per share surprise in the last four quarters, as shown in the table below.
Source: Yahoo Finance
Flextronics net sales for the fourth quarter ended March 31, 2015 were just under $6.0 billion, slightly below its previously provided revenue guidance of $6.0 billion to $6.4 billion, and below Analysts' estimates for revenue of $6.27 billion. For the first quarter, the company forecasted revenue of $5.6 billion to $6.2 billion, and EPS of 20 cents to 26 cents. That is below the consensus for $6.5 billion and 26 cents.
Although the company was not able to increase sales in the latest quarter, it achieved adjusted operating income increase of 13% year-over-year due to a higher margin. The adjusted EPS of $1.08 was up 21% versus the prior year, an all-time record.
I see high growth prospects for the company. In the recent company's investor day on May 06, Flextronics emphasized that it is well positioned to benefit from the accelerating pace of innovation that is being driven, in part, by the increasing interconnectivity of everything. The company continues to invest in assets outside the traditional technology space. Flextronics recently announced a definitive agreement to acquire Mirror Controls International, which makes glass and mirror actuators for automotive applications. Also, early in April, Flextronics announced that it had been selected by Sun Edison to manufacture solar panels in Mexico, in a significant expansion of an existing partnership. In my view, Flextronics will benefit from its investments outside the technology sector, due to better margins. During the latest quarter, non-technology businesses grew margins sharply while technology dependent businesses declined.
FLEX's stock is up 5.9% year-to-date while the S&P 500 index has increased only 2.1%, and the Nasdaq Composite Index has risen 7.3%. Nonetheless, in my opinion, shares could go much higher.
Chart: TradeStation Group, Inc.
FLEX's valuation metrics are excellent, the trailing P/E is very low at 11.72, and the forward P/E is even lower at 9.85. The price-to-sales ratio is extremely low at 0.26, and the price-to-free-cash-flow is also very low at 14.95. Moreover, the enterprise value/EBITDA ratio is very low at 6.21, and its PEG ratio is exceptionally low at 0.50, the lowest among all Russell 1000 tech stocks, as shown in the table below.
The PEG ratio - price/earnings to growth ratio - is a widely used indicator of a stock's potential value. It is favored by many investors over the P/E ratio because it also accounts for growth. A lower PEG means that the stock is more undervalued.
In addition, FLEX's Efficiency parameters have been much better than its industry median, its sector median and the S&P 500 median as shown in the table below.
Flextronics is well positioned to benefit from the accelerating pace of innovation that is being driven, in part, by the increasing interconnectivity of everything. In my view, Flextronics will benefit from its investments outside the technology sector, due to better margins. The company has compelling valuation metrics and strong earnings growth prospects; its PEG ratio is exceptionally low at 0.50, the lowest among all Russell 1000 tech stocks. The company is committed to 5 -10% annual net income growth and it continues to use its strong cash flow generation to return consistently value to its shareholders through repurchasing shares. All these factors bring me to the conclusion that FLEX's stock is a smart long-term investment.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in FLEX over the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.