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Sonos (SONO - Free Report) is taking the world of digital speaker technology by storm, with a cutting-edge product line-up of luxury home audio systems. Sonos has become a household name in the past 18-months of economic lockdowns as consumer spending on 'smart' home upgrades takes off.
The pandemic tailwind continues to propel this audio innovator into profitable growth on soaring margins over the past 4 quarters, illustrating this company's operational superiority. Sonos's last year of financial results have blown past analysts' expectations and propelled its share price up an unprecedented 170%. Yet, I still see more room for SONO to run from here as conservatism keeps these shares below their intrinsic value.
Analysts have raised their EPS estimates and price targets alike on this premium wireless speaker business since its June quarter report last month, thrusting SONO into a Zacks Rank #1 (Strong Buy). The recent pullback from its post-earnings pop combined with fresh price hikes across its product lines (7.3% increase on average) has provided us with an excellent opportunity to jump into this internet of things (IoT) consumer device business.
The stock is being held up by a robust support level at SONO's 50-day moving average (represented by the blue line below) around $36 a share, representing its March support price. This should provide the stock with a springboard to bounce off. If $36 doesn't hold, I'll be looking to its 200-day at around $34.25, then $31 (support it hasn't been below in over 7 months).
Once the markets understand that consumers are more than willing to spend a measly 7.3% more (on average) for this brand's luxury audio devices, I expect to see this stock make another run higher.
Image Source: TradingView
The Business & Stock Performance
Sonos is "the world's leading sound experience brand," with a propensity for innovation in a space that has seen little change over the past couple of decades. The company's devices utilize the internet of things (IoT) to allow its customers to stream best-in-class acoustics in multiple rooms at once with spatially aware technology that adjusts for the ideal quality in the space you are listening in.
This growth-fueled consumer electronics business went public just over 3 years ago for a price of $15 a share with a $1.5 billion market (now trading around $36 and $4.5 billion, respectively) and was a market dog for years. It wasn't until the back half of the pandemic (late 2020) that Sonos really started making waves in this market.
Sonos is a consumer discretionary company with less financial visibility than subscription-based models (the gold standard in tech these days). This lack of long-term earnings visibility makes it much more difficult for analysts to accurately value a business like this, which typically leads to conservative estimates and potential undervaluation. The skyrocketing demand for Sonos products, management's ability to deliver incredible margins with consistent profitability, combined with a continually improving annual outlook, gave this apprehensive market enough reason to drive these shares to the stratosphere.
Since its September quarter (fiscal Q4) results hit the wire last November, SONO has more than doubled in value, with each subsequent report since sending fresh bullish capital into this audio innovator.
The Opportunity
The company outlined its still nascent market opportunity in its latest earnings presentation, stating that its total addressable market (TAM) is nearly $90 billion annually (as of last September). According to this presentation, it's only penetrated about 7% of its core "premium global home audio" end-market and has designs on extensive international growth that should grow this TAM.
The company is confidently targeting $2.25 billion in revenue for its full-year 2024 (ending in September 2024), which would represent a 32% improvement from management's projected 2021 results. Now, this doesn't sound like the rich growth narrative we are looking for, but Sonos's management team, led by Patrick Spence since 2012, has upwardly revised their conservative FY 2021 estimates following each of the past 3 reported quarters. I believe that this 2024 guidance is exceptionally conservative, and so do analysts who estimate the company will reach this goal a year prior.
The fact that there is still growing demand for Sonos's endless stream of innovative products as we exit the pandemic gives me confidence that the pandemic sales pull-forward won't catalyze significant deceleration in the coming quarters. This is something that is already playing out in the quarterly results of many other consumer tech players.
The company's global expansion is already proving to be a success. Its most recent quarter illustrated over 100% year-over-year growth in its Asian Pacific region and an annual sales increase within its Europe, Middle East, & Africa (EMEA) operations of more than 50%. International revenues now make up 41% of revenues compared to the 39% from the same quarter last year. I suspect that further global penetration will infuse growth into the nature of this business's operations.
SONO is trading at a 31x P/E, which seems high for a consumer discretionary business at first glance, but is primarily due to its recent turn to profitability. When factoring growth into this valuation multiple (aka its PEG), it is trading at 0.75x, coming in well below the consumer electronics industry average of 1.15x (any PEG multiple below 1x is generally seen as a value play, as long as growth is sustainable).
Final Thoughts
Sonos is competing in a highly competitive space, but it has achieved brand awareness in the premium home audio space that only Bose can rival (and it looks like Sonos is slowly but surely taking that market away from Bose). Sonos's dedication to quality and innovation should allow this firm to remain at the innovative forefront of this niche market. Its proven management team is unquestionably savvy enough to do so.
The tremendous rally that SONO has exhibited in the past year of trading reflects conservative estimates and unconvinced investors, who were all proven wrong by this IoT speaker company's skillful leadership team. The stock has been trading sideways for over 7 months now, and with estimates on the rise, this lack of upward impetus has compressed its valuation multiple and created a valuable opportunity for us.
5 out of 7 analysts are calling SONO a buy today with no selling ratings. The average price target on this stock sits at 43.67 with a bullish target of $51, representing upsides north of 20% & 40%, respectively, from where SONO is trading today. These shares and their 1.9x beta are subject to short-term volatility, but I like the valuation today as a long-term play in the consumer electronics space.
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Bull Of The Day: Sonos (SONO)
Sonos (SONO - Free Report) is taking the world of digital speaker technology by storm, with a cutting-edge product line-up of luxury home audio systems. Sonos has become a household name in the past 18-months of economic lockdowns as consumer spending on 'smart' home upgrades takes off.
The pandemic tailwind continues to propel this audio innovator into profitable growth on soaring margins over the past 4 quarters, illustrating this company's operational superiority. Sonos's last year of financial results have blown past analysts' expectations and propelled its share price up an unprecedented 170%. Yet, I still see more room for SONO to run from here as conservatism keeps these shares below their intrinsic value.
Analysts have raised their EPS estimates and price targets alike on this premium wireless speaker business since its June quarter report last month, thrusting SONO into a Zacks Rank #1 (Strong Buy). The recent pullback from its post-earnings pop combined with fresh price hikes across its product lines (7.3% increase on average) has provided us with an excellent opportunity to jump into this internet of things (IoT) consumer device business.
The stock is being held up by a robust support level at SONO's 50-day moving average (represented by the blue line below) around $36 a share, representing its March support price. This should provide the stock with a springboard to bounce off. If $36 doesn't hold, I'll be looking to its 200-day at around $34.25, then $31 (support it hasn't been below in over 7 months).
Once the markets understand that consumers are more than willing to spend a measly 7.3% more (on average) for this brand's luxury audio devices, I expect to see this stock make another run higher.
Image Source: TradingView
The Business & Stock Performance
Sonos is "the world's leading sound experience brand," with a propensity for innovation in a space that has seen little change over the past couple of decades. The company's devices utilize the internet of things (IoT) to allow its customers to stream best-in-class acoustics in multiple rooms at once with spatially aware technology that adjusts for the ideal quality in the space you are listening in.
This growth-fueled consumer electronics business went public just over 3 years ago for a price of $15 a share with a $1.5 billion market (now trading around $36 and $4.5 billion, respectively) and was a market dog for years. It wasn't until the back half of the pandemic (late 2020) that Sonos really started making waves in this market.
Sonos is a consumer discretionary company with less financial visibility than subscription-based models (the gold standard in tech these days). This lack of long-term earnings visibility makes it much more difficult for analysts to accurately value a business like this, which typically leads to conservative estimates and potential undervaluation. The skyrocketing demand for Sonos products, management's ability to deliver incredible margins with consistent profitability, combined with a continually improving annual outlook, gave this apprehensive market enough reason to drive these shares to the stratosphere.
Since its September quarter (fiscal Q4) results hit the wire last November, SONO has more than doubled in value, with each subsequent report since sending fresh bullish capital into this audio innovator.
The Opportunity
The company outlined its still nascent market opportunity in its latest earnings presentation, stating that its total addressable market (TAM) is nearly $90 billion annually (as of last September). According to this presentation, it's only penetrated about 7% of its core "premium global home audio" end-market and has designs on extensive international growth that should grow this TAM.
The company is confidently targeting $2.25 billion in revenue for its full-year 2024 (ending in September 2024), which would represent a 32% improvement from management's projected 2021 results. Now, this doesn't sound like the rich growth narrative we are looking for, but Sonos's management team, led by Patrick Spence since 2012, has upwardly revised their conservative FY 2021 estimates following each of the past 3 reported quarters. I believe that this 2024 guidance is exceptionally conservative, and so do analysts who estimate the company will reach this goal a year prior.
The fact that there is still growing demand for Sonos's endless stream of innovative products as we exit the pandemic gives me confidence that the pandemic sales pull-forward won't catalyze significant deceleration in the coming quarters. This is something that is already playing out in the quarterly results of many other consumer tech players.
The company's global expansion is already proving to be a success. Its most recent quarter illustrated over 100% year-over-year growth in its Asian Pacific region and an annual sales increase within its Europe, Middle East, & Africa (EMEA) operations of more than 50%. International revenues now make up 41% of revenues compared to the 39% from the same quarter last year. I suspect that further global penetration will infuse growth into the nature of this business's operations.
SONO is trading at a 31x P/E, which seems high for a consumer discretionary business at first glance, but is primarily due to its recent turn to profitability. When factoring growth into this valuation multiple (aka its PEG), it is trading at 0.75x, coming in well below the consumer electronics industry average of 1.15x (any PEG multiple below 1x is generally seen as a value play, as long as growth is sustainable).
Final Thoughts
Sonos is competing in a highly competitive space, but it has achieved brand awareness in the premium home audio space that only Bose can rival (and it looks like Sonos is slowly but surely taking that market away from Bose). Sonos's dedication to quality and innovation should allow this firm to remain at the innovative forefront of this niche market. Its proven management team is unquestionably savvy enough to do so.
The tremendous rally that SONO has exhibited in the past year of trading reflects conservative estimates and unconvinced investors, who were all proven wrong by this IoT speaker company's skillful leadership team. The stock has been trading sideways for over 7 months now, and with estimates on the rise, this lack of upward impetus has compressed its valuation multiple and created a valuable opportunity for us.
5 out of 7 analysts are calling SONO a buy today with no selling ratings. The average price target on this stock sits at 43.67 with a bullish target of $51, representing upsides north of 20% & 40%, respectively, from where SONO is trading today. These shares and their 1.9x beta are subject to short-term volatility, but I like the valuation today as a long-term play in the consumer electronics space.