Flex Down 14% in 3 Months: Should You Buy, Hold or Offload?

Over the past three months, Flex Ltd. FLEX stock has declined 13.7% against the Zacks Electronics – Miscellaneous Products industry’s growth of 6.2%. During the same period, the Zacks Computer and Technology sector inched up 0.2%, while the S&P 500 composite rose 3.4%.

FLEX has underperformed Cisco Systems, Inc. CSCO and Jabil Inc. JBL, while outperforming Sanmina Corporation SANM. CSCO has climbed 25.6%, while JBL and SANM have declined 2.9% and 17.2%, respectively.

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Nevertheless, the stock has surged 143.6% in a year. Flex is benefiting from accelerating AI infrastructure demand, robust communications growth and strength across high-value industrial markets, led by Cloud and Power Infrastructure (CPI) business.

Let’s take a closer look at FLEX’s fundamentals, key growth drivers, competitive strengths and potential risks to determine whether the stock is an attractive investment or not.

Factors to Consider

Flex's CPI business is emerging as a key growth driver. In the first quarter of fiscal 2027, revenue increased 21% year over year to $7.9 billion, while adjusted operating profit rose 35% and adjusted EPS increased 39% to $1. The CPI segment was a major growth driver, with revenue up 35% year over year to $2.2 billion, supported by strong growth in power as cloud and cooling programs continued to ramp. The company also saw strong growth in communications and industrial businesses, driven by high-value markets including advanced networking, automation and energy infrastructure.

The company is also benefiting from sustained demand tied to the ongoing AI infrastructure build-out. Advanced networking continues to see strong customer demand, with growth across high-speed switching, optical products and network interface technologies, while the company is also gaining share in some product segments. Demand is being supported by data center infrastructure spending, and Flex expects communications to remain one of its largest and healthiest businesses within the post-spin company. In industrial markets, energy infrastructure is benefiting from demand linked to data centers and utility-scale infrastructure, while robotics and warehouse automation are supported by regionalization, labor shortages, wage inflation and the need for greater productivity.

Flex is expanding its capabilities in power, cooling and compute integration as AI infrastructure requirements become more complex. Flex is seeing strategic discussions with hyperscaler customers around next-generation silicon, power and cooling, while its partnership with Cerebras includes manufacturing, cooling and next-generation power opportunities. The JetCool acquisition has added cold plate capabilities, while Flex is developing and qualifying coolant distribution units for customers. Its modular capabilities are also expanding, with additional power capacity being added in Iowa and Dallas, while the company continues to invest in facilities, cooling infrastructure and manufacturing capacity to support the expected acceleration in CPI growth.

Flex's outlook remains strong, with fiscal 2027 revenue expected at $33.7 billion to $35.2 billion and adjusted EPS of $4.42 to $4.74. CPI revenue is expected to increase 65% to 75%, while RMS revenue is projected to rise mid-single digits to high single digits and ITS revenue high single digits to low double digits. The company expects continued strength in industrial and communications, while CPI growth is expected to accelerate as new cloud and power programs ramp.

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However, Flex is grappling with margin pressure as it invests heavily to support its expected growth. New programs in the CPI business initially require investment, which can temporarily weigh on margins, while the power business is also seeing muted margins as Flex continues investing to support growth of more than 70%. The company expects at least 100 basis points of year-over-year margin improvement in CPI, but the segment's growth is back-half loaded, making execution of the planned capacity expansion important. The company is also facing capacity constraints in some modular power areas and continues to commission new facilities and manufacturing infrastructure to support the ramp.

Also, Flex is facing pressure from the costs associated with the planned CPI spin-off. First-quarter free cash flow was $41 million and was negatively impacted by $24 million of one-time cash costs related to the separation. Flex expects fiscal 2027 free cash flow conversion of approximately 40% compared with the previously stated 60% target after incorporating spin-off costs. In addition, weakness in consumer-related end markets continues to offset some of the strength within ITS, while the cooling business remains relatively nascent and still requires further work to scale.

A Look at FLEX’s Valuation

The stock trades at a forward 12-month price-to-sales (P/S) ratio of 1.21, below the industry’s average of 10.93. CSCO, JBL and SANM trade at a forward 12-month P/S of 7.56X, 0.87X and 0.69X, respectively.

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FLEX’s Upward Estimates

The Zacks Consensus Estimate for FLEX’s earnings for fiscal 2027 has been revised upward over the past 60 days.

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What Should You Do With FLEX Stock Now?

FLEX’s strong growth outlook, AI-driven demand and attractive valuation support its long-term prospects, although margin pressure, spin-off costs and near-term execution risks remain concerns.

Existing investors should hold, while new investors should wait for a better entry point.

Currently, Flex carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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