Contract electronics manufacturer Jabil (JBL -0.18%) was a top performer on the stock market in 2023 with gains of 87% -- well ahead of the S&P 500 index's jump of 24%. And the stock remains incredibly cheap even after its impressive rally last year.
Shares of Jabil, which provides contract manufacturing services to multiple industries ranging from automotive to healthcare to cloud computing, are trading at just 0.5 times sales right now. What's more, its trailing price-to-earnings (P/E) ratio is just 21, in line with the S&P 500 index's average P/E multiple. The forward P/E multiple, meanwhile, stands at a cheaper 11.
So, should investors start buying Jabil stock hand over fist considering its attractive valuation?
Jabil warns of a slowdown, but that's only half the story
In mid-December, when Jabil released fiscal 2024 first-quarter results (for the three months ended Nov. 30, 2023), it became evident that not all is well for the contract electronics manufacturer. Its revenue was down 13% year over year to $8.4 billion. Jabil's non-GAAP (adjusted) earnings, however, increased 12% year over year thanks to the company's focus on improving its margin profile.
Jabil recently divested its mobility business, which was one of its "highest fixed cost businesses." Also, Jabil is pushing out its planned investments in light of the near-term macroeconomic headwinds that are impacting its business.
The company is forecasting fiscal 2024 revenue to land at $30.6 billion following the recent divestiture, along with adjusted earnings of $9 per share. The mobility business generated $4 billion in revenue for Jabil in fiscal 2023, so investors should not be disheartened by the year-over-year revenue decline that the company is going to witness in the current fiscal year.
Jabil earned $8.63 per share in fiscal 2023 on revenue of $34.7 billion. So, while the company's top line is on track to decline nearly 12%, its earnings are expected to increase slightly. The improvement in its bottom line despite the top-line contraction suggests the steps that Jabil is taking to boost its margins are working.
What's more, the company is expected to return to top-line growth from fiscal 2025, when analysts are forecasting $32.7 billion in revenue. Additionally, Jabil estimates that its earnings growth could accelerate in the next fiscal year to $10.65 per share, which would be an 18% increase over what the company has guided for fiscal 2024.
It is worth noting that analysts have raised their earnings expectations for Jabil over the past year. The chart below indicates that Jabil stock could indeed deliver healthy gains over the next couple of years.
JBL EPS Estimates for Current Fiscal Year data by YCharts
The bigger picture remains bright
Jabil management pointed out on the company's previous earnings conference call that it is witnessing a "broad slowdown of demand across multiple end markets." But at the same time, management is confident that the "slowdown will be temporary in nature."
That's not surprising as the global contract electronics manufacturing market is anticipated to clock annual growth of almost 10% through the end of the decade, according to Grand View Research. The market's growth will be driven by the growing need for contract manufacturing in electric vehicles, AI-powered data centers, and renewable energy infrastructure.
As a result, Jabil seems capable of hitting its fiscal 2025 earnings-per-share target of $10.65. Assuming it does hit that mark and maintains its current P/E ratio of 21.7 at that time, Jabil stock could jump to $230 in a couple of years. That points toward an 80% jump from current levels. Given that Jabil is currently trading well below its five-year average P/E ratio of 29, investors are getting a good deal on this stock right now. They should consider grabbing this opportunity before this hot tech stock flies higher.
