SONO: Is Sonos Still a Good Stock to Buy?

The audio company Sonos, Inc. (SONO - Get Rating) offers wireless speakers, home theatre speakers and other audio components. Its stock has gained 80.6% over the past three months based on its product innovations to meet changing consumer demand. Moreover, SONO has gained 22.6% since announcing impressive financial results on February 10. The stock closed yesterday’s trading session at $38.73, after hitting its all-time high of $39.02.

Because people are still spending more time at home and upgrading their entertainment gadgets, we think SONO should continue to witness steady demand for its products. Also, the company’s supply-chain efficiencies, which drove its impressive sales, should continue to be a driving force.

On January 13, SONO announced a new line-up of exclusive artist stations and original programming coming to Sonos Radio and Sonos Radio HD. And last December, the company inked a multi-year licensing deal with Legrand to cover the entire range of Legrand’s NUVO multi-room wireless audio products. As part of the agreement, Legrand is expected to pay to license SONO’s patents for all such audio products.

Here’s why I think SONO could perform well in the upcoming months:

High Profitability

SONO’s gross profit margin of 45.7% is 35.2% higher than the industry average of 33.8%. The company also has an impressive ROE and ROA of 9.4% and 4.4%, respectively. In addition, SONO ’s levered free cash flow margin of 16.3% compares favorably with the industry average 7.5%.

Revenue Growth Across All Major Segments

SONO’s results for its fiscal 2021 first quarter, ended January 2, 2021, was the best in its 18-year history. The company reported total revenue of $645.58 million, up nearly 15% year-over-year. SONO’s revenue from Sonos speakers increased more than 13% year-over-year to $527.52 million, while revenue from Sonos system products increased 58.9% year-over-year to $97.76 million.

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On a regional basis, the company’s revenue from the U.S. was reported to be $367.24 million, up 21.2% year-over-year. And its revenue from Europe, Middle East and Africa increased 12.8% year-over-year to $240 million.

Favorable Analyst Estimates

Analysts expect the company’s revenue to increase 38.3% for the quarter ending March 31, 2021, 17.6% for fiscal 2021 and 8.8% for fiscal 2022. Its EPS is expected to grow 544.4% for the fiscal 2021, 21.2% for the fiscal 2022 and at a rate of 26.6% per annum over the next five years.

The stock has an average broker rating of 1.71. Wall Street analysts expect the stock to hit $39.25 in the near term, which indicates a potential upside of 6.5%.

Favorable POWR Ratings

SONO has an overall rating of B, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. The stock has an A grade for Momentum. This is consistent with SONO’s 80.6% gains over the past three months and 36.9% returns over the past month.

SONO also has an A grade for Quality, in sync with its high profitability ratios.

The stock is also rated for Sentiment, Growth, Value and Stability. Get all SONO’s ratings here.

The stock is ranked #14 of 43 stocks in the A-rated Technology – Electronics industry.

Click here to access several other top-rated stocks in the same industry.

Bottom Line

As consumers’ focus on home improvement, buying new audio products for a better experience at home is on the rise. We believe SONO is well positioned to keep advancing based on its strategic partnerships and consistent product innovations.

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SONO shares were trading at $39.15 per share on Wednesday morning, up $0.42 (+1.08%). Year-to-date, SONO has gained 67.38%, versus a 3.20% 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...