SONY: Sony vs. GoPro: Which Consumer Electronics Stock is a Better Buy?

The consumer electronics industry has been one of the highly coveted industries by investors this year. Remote working and increasingly tech-oriented lifestyles increased the demand for consumer electronics globally. The global lockdown, which paused economies worldwide, raised the average prices of most electronic products earlier this year, due to supply shortages.

However, many companies have ramped up their production levels since then, as well as designed new products specifically catering to remote lifestyles. The industry is now positioned nicely to hit new highs over the coming years. The consumer electronics market is expected to increase at a CAGR of 7% over the next six years, according to a report published by Global Market Insights.

Both Sony Corporation (SNE) and GoPro, Inc. (GPRO) have benefited from the pandemic and generated substantial profits over the past couple of quarters. SNE’s diversified products in virtually all consumer electronics segments have allowed it to garner surging demand over the past year. GPRO, in comparison, specializes in cloud-connected cameras and voice-activated accessories. It has focused on design improvements and innovation over this period, making its products highly efficient, and in demand.

Both the companies have generated decent returns over the past three years. While SNE returned 123.4% over this period, GPRO gained 8.7%. However, in terms of their performance over the past year, GPRO is the clear winner with a 91.6% gain versus SNE’s 48.2% returns. Moreover, GPRO has gained 14.9% over the past month, significantly outperforming SNE’s 6.8% returns over this period.

But which stock is a better buy now? Let’s find out.

Latest Developments

SNE was the first Japanese company to be listed on the New York Stock Exchange (NYSE) 50 years ago. As one of the largest creative entertainment companies in the world, SNE strengthened its position in the U.S. market through strategic expansions. The company marked its 50th anniversary on the Big Board in September.

Despite the pandemic, SNE launched new products including memory cards, and priced its 4k resolution televisions earlier this year, reflecting its technological prowess and strong fundamentals.

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GPRO, meanwhile, upgraded the firmware on its Hero9 black flagship camera earlier this month, and simultaneously launched its Bluetooth remote control for the camera. This state-of-the-art product, with 30% faster content transfer speed, is expected to be a success among photographers and multiply GPRO’s revenues.

GPRO reported record revenues over the Black Friday and Cyber Monday period, as reported on December 3. Moreover, the company’s subscriber count surpassed 670,000 during the sale. This indicates the rising popularity of GPRO’s products, allowing it to increase its market share gradually.

Earlier in November, GPRO raised $125 million through a senior note offering. The company plans to utilize a portion of the proceeds to repurchase previously issued senior notes bearing higher interest rates, thereby reducing its overall interest burden.

Recent Financial Results

SNE’s operating income has risen 14% year-over-year to ¥317.80 billion in the fiscal second quarter ended September 30, 2020. Its adjusted EBIT grew 14% from the same period last year to ¥299.60 billion, while net income increased 145% from the year-ago value to ¥459.60 billion.

GPRO’s revenue has increased 113.9% year-over-year to $280.51 million in the third quarter ended September 30, 2020. Gross profit has risen 249.3% from the year-ago value to $99.31 million. The company reported net income of $3.31 million and EPS of $0.02 over this period, indicating a substantial improvement from negative year-ago values.

Past and Expected Financial Performance

SNE’s revenue has increased slightly over the past three years, while GPRO’s revenue declined over this period. Moreover, SNE’s total assets have increased at a CAGR of 9.9% over the past three years, while GPRO’s total assets declined 8.4% over this period.

Analysts expect SNE’s EPS to increase 210% in the next quarter (ending March 31, 2021), and at a rate of 5.2% per annum over the next five years. Consensus revenue estimates indicate a 21.8% improvement in the next quarter, and 4.8% rise next year.

GPRO’s EPS, on the other hand, is expected to rise 70.6% in the next quarter, and at a rate of 10% per annum over the next five years. Analysts expect the company’s revenues to rise 40.1% in the next quarter, and 18.9% next year.

SNE’s position as a dominant player in this industry has afforded it an impressive earnings surprise history; it has beaten the Street EPS estimates in three of the trailing four quarters, while GPRO missed in two.

Profitability

SNE’s trailing 12-month revenue is 74.18 times GPRO’s. However, GPRO is more profitable with a gross margin of 35.9% compared to SNE’s 27.6%.

SNE’s Net Income Margin and ROE of 11.3% and 19.9%, respectively, compare favorably with GPRO’s negative values.

Valuation

In terms of forward P/E, SNE is currently trading at 20.24x, 80.6% higher than GPRO, which is currently trading at 11.21x. SNE is also more expensive in terms of trailing 12-month Price/Sales (1.53x versus 1.19x) and EV/Sales (1.70x versus 1.28x).

However, GPRO’s trailing 12-month Price/Cash Flow ratio of 17.01x is 109.5% higher than SNE’s 8.12x.

POWR Ratings

SNE is rated “Strong Buy” in our proprietary POWR Ratings system, while GPRO is rated “Buy”. Here are how the four components of our overall POWR Rating are graded for both these stocks:

SNE has an “A” for Trade Grade, Buy & Hold Grade and Peer Grade, and “B” for Industry Rank. In the 21-stock Entertainment – Media Producers industry, it is currently ranked #1.

GPRO has an “A” for Trade Grade and Industry Rank, “B” for Buy & Hold Grade, and “C” for Peer Grade. It is currently ranked #14 of 30 stocks in the Technology – Hardware industry.

The Winner

As one of the largest creative entertainment companies in the world, SNE enjoys brand recognition and sizable market share. The company’s key financial metrics discussed here have increased significantly over the past couple of years, justifying its slightly higher valuation.

GPRO, in comparison , as a relatively newer company, is still in its development stage. Operating in the technology hardware industry, GPRO reaped the benefits of pandemic-driven demand. However, with the ongoing vaccination drive, GPRO’s sustainability in a post pandemic world is uncertain. Thus, SNE, with decades of experience and global operation scale, is a better buy here we think.

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SNE shares were trading at $100.78 per share on Wednesday afternoon, up $0.35 (+0.35%). Year-to-date, SNE has gained 49.01%, versus a 17.82% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...