Ingram Micro Inc. (IM), Avnet, Inc. (AVT): This Tech Distributor is a Bargain

However, Avnet should boost its return on invested capital through additional cost-cutting. At the same time, Ingram Micro Inc. (NYSE:IM) maintains a below-average return on invested capital despite excellent working capital management. This is due to the company’s precarious position as the largest company in an industry that offers no sustainable competitive advantages.

Investment Case

ScanSource is the most attractive of the three given its high margins, niche markets, and low price-to-earnings ratio — it currently trades at just 12.5x trailing earnings.

Meanwhile, Avnet and Ingram Micro both trade at 10.5x trailing earnings, but their businesses are not as attractive as ScanSource’s. ScanSource offers reliable earnings and revenue growth due to its niche positioning, but Avnet and Ingram Micro are more susceptible to competitive pressures due to the breadth of their product offerings. As a result, neither company is an attractive investment option at a 10% earnings yield during a good year for the industry.

Bottom line

Over the long run, it pays to stick with the best company in the industry. Consider an investment in ScanSource and toss out Avnet and Ingram Micro.

The article This Tech Distributor is a Bargain originally appeared on Fool.com is written by Ted Cooper.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.