Book Profit on This NASDAQ-Listed Consumer Electronics Stock - SONO

Feb 23, 2022 12:00 AM PST | Team Kalkine
Book Profit on This NASDAQ-Listed Consumer Electronics Stock - SONO


Sonos, Inc.

Sonos, Inc. (NASDAQ: SONO) designs and markets audio systems for the home. Its product portfolio comprises Speaker sets and numerous accessories such as boost, mounts, stands, cables, and networking. The company's operations are spread over the Americas, Europe, the Middle East and Africa, and the Asia Pacific. The Americas generate the majority of the company's revenue.

Why Should Investors Book Profit?

  • Decline in Profitability: Net income declined 6.66% YoY to USD 123.48 million in Q1FY22 (ended January 01, 2022) from USD 132.29 million in Q1FY21(ended January 02, 2021).
  • Weak Margin Profile: In Q1FY22, SONO’s reported EBITDA margin was 21.9% vs. 23.5% in Q1FY21 and reported net margin of 18.6% in the period under consideration which was lower than the 20.5% reported in the same period of the corresponding previous financial year.
  • Decreasing ROE: SONO’s ROE declined significantly to 18.6% in Q1FY22 from 20.5% in Q1FY21.
  • Seasonality Risk: SONO's revenue has generally been substantially higher in its first fiscal quarter due to increased customer spending patterns over the holiday season. Any revenue shortages in the first quarter due to macroeconomic conditions, product release patterns, supply chain disruptions, or other factors could hurt the company's annual operating results.
  • Technical weakness:On daily price chart, SONO shares moved below its crucial short-term support level of 50-day SMA and already trading below its crucial long-term support level of 200-day SMA, implies SONO shares are trading in long-term bearish zone. Further, the leading momentum indicator 14-day RSI hoovering  in a neutral zone

Valuation Methodology: Price/Cash Flow Per Share Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

SONO's share price has declined 28.80% in the past six months and is currently leaning towards the lower band of the 52-week range of USD 21.46 to USD 44.72. We have valued the stock using the Price/Cash flow-based relative valuation methodology and arrived at a target price of USD 23.48.

Considering the company's declining profitability, weak margin profile, contraction of ROE, current valuation and associated risks. we recommend a "Sell" rating on the stock at the closing price of USD 26.92, traded flat, as of February 18, 2022.


 Three-Year Technical Price Chart (February 18, 2022). Analysis by Kalkine Group

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.