Sonos Stock Up 15% in August – Time to Buy Sonos Stock?

The price of Sonos stock has gone up 15% so far in August following the release of another upbeat quarterly report where the company beat analysts’ estimates for both revenues and earnings.

During its third fiscal quarter of 2021, Sonos reported sales of $379 million, resulting in a 52% increase compared to the same period a year ago while exceeding Wall Street’s estimates for the period by more than 20%.

Meanwhile, the Santa Clara-based manufacturer of audio devices surprisingly swung to profitability as it reported adjusted earnings per share of $0.27 compared to a $0.11 loss reported a year ago while shattering analysts’ forecasts of minus $0.06 per share for the quarter.

Could this surprising turnaround in Sonos business lead to new all-time highs for the stock soon? The following article takes a look at the price action of SONO stock along with analyzing the firm’s fundamentals to possibly answer that question.

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Sonos Stock – Technical Analysis

Sonos shares were on a downtrend before this latest quarterly report as most market participants appear to have been expecting a decline in the firm’s revenue growth rates amid a fading pandemic tailwind.

However, the trends that lifted the firm’s results during past quarters seem to keep playing in favor of Sonos business as indicated by this quarter’s revenue and earnings beats.

Shares initially jumped 7% on the day that followed the earnings release during a high-volume trading session that saw 37.8 million shares exchanging hands, a number that exceeded the 10-day average by around 18 times.

Meanwhile, the stock kept advancing in the past few days until hitting the $42.50 level while it is retreating 1.8% this morning at $39.2 per share.

Despite today’s downtick, momentum readings are favoring a sustained bullish move that could push the stock toward the $45 level again for a potential 11.4% gain. Moreover, SONO’s short-term moving averages just posted a golden cross as the 20-day simple moving average just crossed above the 50-day marker while the MACD is displaying signs of accelerating positive momentum.

Sonos Stock – Fundamental Analysis

Sonos revenues were on a downtrend until the third fiscal quarter of 2020 but the company started to exhibit signs of a shift in its performance amid multiple supporting trends derived from the pandemic.

In this regard, the Chief Executive of Sonos, Patrick Spence, highlighted three trends that could continue to lift the firm’s performance moving forward:

1. Higher volumes of streamed audio content on platforms like Spotify, Deezer, and Amazon Music.
2. Higher consumption of at-home video streaming services like Netflix, Disney+, and Amazon Prime.
3. A higher number of people now working from home who are equipping their home offices with top-line audio devices.

All of these trends could continue to drive the company’s sales higher in the future and they have primarily emerged as a result of the pandemic.

In the last twelve months, revenues for Sonos jumped to $1.7 billion compared t $1.28 billion the firm brought during the 12 months ended on 30 June 2020 while gross margins have progressively improved from an average of 42% to 47% during this past quarter.

Moreover, the firm’s bottom-line performance has shifted from a net loss of $20.1 million reported during the twelve months ended on 30 June 2020 to a net profit of $185.8 million during the twelve months ended on 30 June this year.

This remarkable turnaround for the business would possibly support further upside for the stock as market participants progressively price in the long-lasting impact of these trends on the business future results.

At $39.6 per share, Sonos is trading at only 28 times its GAAP LTM earnings per share and at 22 times its forecasted adjusted EPS for 2021. These multiples make Sonos qualify as an undervalued stock, especially upon considering that the company has no long-term debt while it is sitting on $670 million in cash that currently accounts for around 14% of its market cap.

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