Flex Ltd. (FLEX) in San Jose, Calif., designs, engineering, manufactures, and supplies chain services and solutions to original equipment manufacturers. The company is expected to benefit from the strong momentum in artificial intelligence development, augmented and virtual reality, industrial automation, autonomous vehicles, and other emerging technologies.

However, the company's shares have declined 4.6% in price over the past six months and 2.2% over the past month. 

In addition, closing yesterday's session at $17.50, the stock is currently trading near its all-time low of $15.46.

Here is what could shape FLEX's performance in the near term:

Discounted Valuations

In terms of forward non-GAAP P/E, the FLEX is currently trading at 9.38x, which is 58.1% lower than the 22.4x industry average. Also, its 0.32x forward Price/Sales multiple is 91.5% lower than the 3.48x industry average. Furthermore, FLEX's 2.28x forward Price/Book is 59.2% lower than the 5.60x industry average.

Mixed Profitability

FLEX's 1.5% asset turnover ratio is 134.4% higher than its 0.64% industry average. Also, its $825 million cash from operations is 708.7% higher than the $102.02 million industry average.

However, FLEX's 7.9% trailing-12-months gross profit margin is 83.9% lower than the 49.7% industry average. Also, its net income margin and levered FCF margin are 38.6% and 92.3% lower than their 6.5% and 11% respective industry averages. Furthermore, its 6.1% trailing-12-months EBITDA margin is 57.4% lower than the 14.2% industry average.

POWR Ratings Reflect Uncertainty

FLEX has an overall C rating, which equates to a Neutral in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. FLEX has a C for Stability and Quality. The stock's 1.54 beta is in sync with the Stability grade. In addition, FLEX's mixed profitability is consistent with the Quality grade.

Among the 81 stocks in the D-rated Technology – Services industry, FLEX is ranked #31.

Beyond what I have stated above, one can view FLEX ratings for Growth, Stability, Momentum, and Sentiment here.

Bottom Line

While FLEX's diversified product portfolio with a strong focus on end-markets should drive its growth, the stock has lost significant ground over the past few months. In addition, the company’s negative profit margins could further aggravate its price decline. So, we think investors should wait before scooping up its shares.

How Does Flex Ltd. (FLEX) Stack Up Against its Peers?

While FLEX has an overall C rating, one might want to consider its industry peers, Sanmina Corporation (SANM), Celestica Inc. (CLS), and PC Connection Inc. (CNXN), which have an overall A (Strong Buy) rating.

FLEX shares were unchanged in premarket trading Friday. Year-to-date, FLEX has declined -4.53%, versus a -5.40% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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