- Arrow Electronics is a wholesale supplier of electronic components and enterprise computing solutions. The sheer amount of the company’s offerings gives it economies of scale.
- Arrow Electronics is a mature company operating in a mature industry so you won’t see much in terms of growth.
- The company’s tight margins and low organic growth make me hesitant to recommend it at these levels.
In this article, I’m focused on a stock that can be considered a defensive play. Today, I am examining Arrow Electronics (NYSE:ARW). I evaluate the current valuation and business to see if it is worth an investment. Let’s dive in.
Just a brief background on the company. Arrow Electronics is a wholesale supplier of electronic components and enterprise computing solutions. The company has a wide array of products, services, and solutions to help industrial and commercial users introduce innovative products, reduce their time to market, and enhance their overall competitiveness. For example, Arrow Electronics’ customers can leverage its products and services to help them build various products related to “internet of things” or high-end video and professional audio devices among many others.
The company has two business segments, the global components business, and the global enterprise computing solutions business. The global components business represents roughly 70% of the company’s 2019 revenue and consists of distributing electronic components to OEMs and CMs. Like any wholesale distributor, customers work with Arrow Electronics for the convenience of accessing multiple items from a single source and to streamline logistics and coordination. The majority of the global components business segment sales are from semiconductors which represent 72% of the segment’s net sales.
The company’s global ECS business segment, which represents 30% of 2019 revenue, is a wholesaler of software solutions and other services (data center, cloud, security, etc.). The company works with service providers and consultants to tailor complex IT solutions for their end-users. The company primarily provides this service via its ArrowSphere platform which has an extensive catalog of more than 25,000 software offerings worldwide. The sheer amount of the company’s offerings at different points in the product life cycle give it economies of scale which form its competitive advantage.
