Based in Santa Barbara, California, Sonos, Inc. (SONO) is one of the world’s leading sound experience brands. The company offers wireless speakers, home theatre speakers, and other home audio components. With more than 50 streaming services, SONO offers its products through third-party retail stores and ecommerce retailers, as well as through its own website. Sonos is known as the inventor of multi-room wireless home audio.

SONO hit an inflection point in the last-reported quarter (ended September 31, 2020), demonstrating power and profitability in its business model. With its understanding of market demand, the company has established a track record of delivering relevant new products, services, and software. The stock has gained 70.3% over the past year to close yesterday’s trading session at $25.26, after hitting its all-time high of $25.29.

Looking forward, we expect the stock to keep ascending because the company is focused on delivering new products and services, strengthening its direct-to-consumer efforts, and forging more strategic partnerships. Its impressive performance so far and its potential upside have helped the stock earn a “Strong Buy” rating in our proprietary rating system.

Here is how our proprietary POWR Ratings system evaluates SONO:

Trade Grade: A

SONO is currently trading above its 50-day and 200-day moving averages of $19.86 and $15.86, respectively. This indicates that the stock is in an uptrend. Moreover, SONO has gained 20.6% over the past month, reflecting solid short-term bullishness.

For the quarter ended September 30, 2020, SONO’s revenue surged 15.5% year-over-year to $339.8 million. Its gross margin increased 530 basis points to 47.5% driven by favorable product and channel mix, and cost reductions. Direct-to-consumer revenue increased 67% year-over-year. SONO reported a net income of $18.4 million, yielding non-GAAP EPS of $0.33.

This month, the company announced a multi-year licensing deal with Legrand that will cover the entire range of Legrand’s NUVO multi-room wireless audio products. As part of the agreement, Legrand will pay to license SONO’s patents for all such audio products. And on November 18, the company announced a $50 million stock repurchase program.

On November 12, Sonos launched the Sonos Radio HD, which will feature even more exclusive content directly in the Sonos app. SONO has collaborated with Dolly Parton to introduce Songteller Radio. The company also teamed with Walt Disney Company’s (DIS) Disney+in September. Together, they celebrated the widely anticipated premiere of the second season of “The Mandalorian” on October 30.

Buy & Hold Grade: A

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers, SONO is well positioned. The stock is currently trading just 0.1% below its 52-week high of $25.29.

The company’s net revenue has grown at a CAGR of 10.2% over the past three years in-part because its customers have exhibited strong repurchasing habits. Also, its EBITDA has increased at a CAGR of 23.9% over the same period. Moreover, including fiscal year 2020, the company has grown its households market by at least 20% annually for 15 consecutive years.

Peer Grade: A

SONO is currently ranked #6 of 38 stocks in the Technology – Electronics industry. Other popular stocks in the technology – electronics group are Amphenol Corporation (APH), Keysight Technologies Inc. (KEYS), and Dolby Laboratories (DLB).

With a 70.3% gain, SONO has comfortably beaten the returns of these popular industry participants over the past year. APH, KEYS, and DLB have gained 20.3%, 24.8% and 36.8%, respectively, over the same period.

Industry Rank: B

The Technology – Electronics industry is ranked #56 out of the 123 StockNews.com industries. The companies in this industry manufacture and distribute electronic components, including semiconductors, connectors, electromechanical devices, and other similar products.

With people spending more time at home amid the coronavirus pandemic, demand for consumer electronics has increased significantly. Even the demand for products like semiconductors has increased because these components are needed in most of the digital gadgets in use se today. The industry is expected to continue thriving because the demand for its products and services is not expected to decline even after the pandemic.

Overall POWR Rating: A (Strong Buy)

SONO is rated “Strong Buy” due to its short- and long-term bullishness, solid growth prospects, and underlying industry strength, as determined by the four components of our overall POWR Rating.

Bottom Line

SONO has the potential to rally in the upcoming months, despite gaining 70.3% over the past year, based on its continued business growth, favorable earnings and revenue outlook, and strong financials.

The consensus revenue estimate of $1.46 billion for 2021 indicates 10% increase year-over-year. EPS is expected to grow at 483.3% in 2021.

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SONO shares were trading at $25.17 per share on Wednesday morning, down $0.09 (-0.36%). Year-to-date, SONO has gained 61.14%, versus a 16.69% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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