Sonos Stock: buy The Dip?

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Sonos (NASDAQ: SONO), a company best known for its multi-room speakers and home theater systems, saw its stock drop by about 3% last week (five trading days) and moved about -15% over the two last few weeks. In comparison, the S&P 500 fell less than 1% over the same period. The sell-off is due to a broader drop in growth stocks in recent weeks, although Sonos partially recovered late last week, thanks to stronger-than-expected results in Q2 FY’21 (fiscal year ending in September) and better prospects for the entire year. So, is Sonos stock on the verge of going up or does a further sell-off look more likely? Based on the machine learning engine Trefis, which analyzes historical movements in Sonos stock prices, the stock has a 53% chance of recovering next month, after falling around 3% in the past five last trading days. See our analysis on Chances of a rise in Sonos shares for more details.

So what’s the fundamental image of Sonos? Sonos stock is currently trading at less than 2.5 times projected revenue for 2021, which we believe is a relatively reasonable valuation for several reasons. First, Sonos’ growth is expected to remain strong, sales are expected to increase by 25% this year. Longer-term growth is also expected to hold, driven by the company’s strong platform effect, with customers typically repeating purchases to expand their Sonos systems. Sonos says customers currently have about three Sonos products in their homes on average, and the company is targeting four to six products in the future. In addition, last year around 41% of the company’s sales went to existing customers. Sonos is also expanding beyond the home market, into portable speakers, automotive audio, and possibly the headphone market. Additionally, Sonos’ margins are also trending upward, with gross margins hitting a record 49.8% in Q2 FY’21, an improvement of 810 basis points from last year. That’s well ahead of Apple – which posted gross margins of 42.5% last quarter. This means that Sonos’ profitability is likely to increase significantly as sales increase.

[4/13/2021]

Sonos (NASDAQ: SONO), a company best known for its multi-room speakers for the home, saw its stock rise by about 4% over the past week (five trading days). The stock is also up 70% year-to-date. In comparison, the S&P 500 is up around 2% and 10% over the past week and year-to-date, respectively. The recent gains come as the company improved its long-term forecast at an investor event in March while looking to expand its presence beyond the domestic market in automotive audio, high- portable speakers and headphones. Over the past month, Sonos unveiled a new, more affordable portable speaker called Roam and said it is working with Audi to deliver sound tuned by Sonos for a new electric vehicle. So, is Sonos stock on the cusp of a rally or does a correction seem imminent? Based on our machine learning engine, which analyzes historical price movements of the Sonos stock, the stock has a 55% chance of going up next month, after rising around 4% in the past five last trading days. See our analysis on Chances of a rise in Sonos shares for more details.

Now, is Sonos stock a buy for long-term investors? The company expects revenue to reach around $ 2.25 billion in fiscal 2024 (fiscal year ends in September). That marks a CAGR of around 13% from the middle of its 2021 forecast of $ 1.55 billion. The company’s previous outlook estimated a growth rate of around 10%. In addition, Sonos’ margin outlook is also encouraging, with gross margins expected to be between 45% and 47% in FY’24, compared to around 43% in FY’20. At its current price of around $ 42 per share, Sonos is trading at around 3.2 times expected revenue for 2021. We think this is a reasonable estimate given the improved growth outlook. and the company’s margins, the expansion of the addressable market and its loyal (and relatively stranded) customer base.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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