Flex's Strong Guidance Meets Persistent Overvaluation Concerns

What happened

Flex has achieved a 179% return since January 2024, fueled by a strategic pivot to higher-margin AI data center and automotive systems, as highlighted in a recent Seeking Alpha article. The company's FY2026 guidance projects revenue of $26.7–$27.3 billion with gross margin rising to 9.14% and levered free cash flow at $998.4 million TTM, indicating operational resilience. However, the DeepValue master report notes that Flex's stock has re-rated sharply to a P/E of ~28x and EV/EBITDA of ~14x, trading ~74% above an FCF-based DCF intrinsic value of $36.64. Despite improving cash flow, revenue has been flat to down in recent years, and net margins remain thin at ~3%, reflecting the competitive, cyclical nature of the EMS industry. Geopolitical risks, such as the $41 million impairment from a Ukraine facility strike, and ongoing integration challenges from acquisitions further cloud the sustainability of current performance.

Implication

Flex's guidance suggests potential for continued margin expansion and cash flow strength, which could support the stock if execution matches expectations. However, the current valuation implies optimistic assumptions about the durability of these improvements, overlooking historical revenue stagnation and thin margins in a fiercely competitive EMS sector. Geopolitical exposures and operational inefficiencies, such as those from the Ukraine incident, pose tangible risks to near-term profitability and cash generation. For disciplined investors, the lack of a significant margin of safety at these levels reinforces the DeepValue report's POTENTIAL SELL stance, advocating for profit-taking or underweighting rather than new exposure. Upcoming earnings reports will be critical to validate guidance and assess whether fundamental improvements can justify the premium multiple, but any disappointment could trigger a sharp correction.

Thesis delta

The new article provides updated guidance that reinforces Flex's operational momentum but does not materially shift the overvaluation thesis. Core concerns remain unchanged: the stock is priced for perfection in a cyclical industry with thin margins, and the 74% premium to intrinsic value leaves little room for error. Investors should maintain a cautious stance, awaiting either a valuation reset towards the $36-40 range or stronger evidence of sustained revenue growth and margin durability to reconsider the investment case.