Sonos, currently priced at 13.25 per share, makes wireless audio systems sold at the higher end of the price spectrum. The stock recently popped after an analyst upgrade. Though Sonos was priced at $21 in September of 2018, it appears as though the stock is on the upswing.
Sonos has been publicly traded for merely a year. The stock peaked at $22.25 after merely one day of trading. Sonos subsequently dipped down below the teens and hovered there for more than half the year until the recent tick upwards. Raymond James analyst Adam Tindle recently boosted his Sonos rating to a strong buy from market perform. The upgrade is the result of the company’s burgeoning pipeline of products that will be featured as it expands to new markets.
There is considerable demand for the Sonos’ SYMFONISK bookshelf speakers combined with upscale table lamps that serve as a source of crystal clear wireless audio. The fact that IKEA has agreed to sell this product is just as important as its merits on its own. IKEA provides key exposure to the masses that will help Sonos become a household name sooner rather than later. It is also possible Sonos will establish a foothold in business outside of the home. Photos of a Bluetooth-enabled speaker made by Sonos have leaked onto the web. The device appears to be battery-powered.
Though plenty of tech monoliths are churning out smart speakers, it is clear Sonos can hold its own against the big boys. The company’s revenue has climbed higher for more than a dozen straight years. In fact, revenue skyrocketed higher than the anticipated 25% this past quarter. The company blew the street’s profit expectations out of the water across its first four quarters after debuting as an IPO. As a result, the forementioned Tindle boosted his rating of the stock and investors followed suit, scooping up Sonos stock left and right.
Is Sonos Worth the Hype?
One would imagine it would prove difficult to rake in the cash selling high-end audio equipment, especially when tech giants are throwing their hats into the ring. However, Sonos is growing. Shares have moved higher in spite of the fact that company executives recently lowered full-year guidance. All in all, the company anticipates $1.25 billion in revenue for the fiscal year, which represents a 10% spike in growth across ’18. Though there is no doubting Sonos is a disappointing IPO that might have made its trading debut at the wrong moment in time, the company is financially healthy with gross margins coming in higher and higher as time progresses. There is still room for this stock to climb even though it recently spiked to a 6-month high.
Why Sonos Initially Fell
Rewind time back six months and Sonos’ stock had dropped quite precipitously. An underwhelming financial quarter combined with a temporary reduction in guidance from company leadership and the departure of Sonos’ chief financial officer all played a role in the stock’s downswing. The question begs: is the fall over? Will the current upward momentum propel Sonos back to its IPO level? Let’s take a look into our crystal ball to find out.
Will Sonos Reach the new Target of $19?
The Raymond James analyst noted above, Adam Tindle, has a newly-established 12-month price target of $19 for Sonos. Even if you account for the recent climb upward, the stock would have to increase about 35% to reach the new target price within a year’s time. This is quite the lofty goal for a premium speaker maker. However, Sonos’ compounded annual growth rate is two times that of a company like GoPro. Sonos’ revenue is up 25% on a year-over-year basis. The company certainly has some momentum to ride. The fact that Sonos executives were willing to hike the entire year’s fiscal outlook when reporting quarterly results is a good sign. Even the company’s gross margin forecast is increasing by a percentage point, hitting 41%.
Buy, Sell or Hold?
If you feel comfortable investing in a maker of elite home audio speakers, Sonos might be the right stock for you. It appears as though the stock is following through on a “dead cat bounce” of sorts following a dismal IPO. However, the fact that the big players in tech are not hesitant to enter Sonos’ space is concerning. If Sonos continues to move upward to the $15 range, current stockholders should consider reducing their position. Those who have yet to invest in Sonos have a decent buying opportunity at the moment. If the company can hold strong as new players enter its space, it should obtain and keep a meaningful share of the market for the foreseeable future. If such a scenario unfolds, the stock will either level off or continue to move back up toward the range it traded at after its initial stock market debut.