sonos: an attractive valuation play with limited risk

by:Merttace     2020-04-26
Sonos (SONO)
It\'s actually a good quarter.
For q1\'19, the company exceeded the estimate of gaap eps for $0.
Income is $5. 71 million.
However, stocks fell about 20% the next day. Why? I have no idea.
Although the company reported record earnings and earnings per share, this is not enough for the market for some reason.
In the conference call, the company reiterated that its goal was to achieve long-term
Continued earnings growth.
The company created $87 million in free cash flow for the quarter and said it expects \"positive cash flow for the foreseeable future \".
As for full guidance for fiscal 2019, the company expects revenue to grow by about 10% between $1.
Between $25 billion and $1.
275 billion, the Adjusted EBITDA is in the range of $83 million to $88 million, which means that Y/Y is growing by about 20% to 27%.
As more and more people listen to audio over the Internet, it is natural that more and more consumers will also buy Sonos products.
Yes, most people will like options that are cheaper than Sonos, but that doesn\'t mean Sonos won\'t benefit either.
For example, the company said in a conference call that podcast listening time increased by 39%.
Every time a new service is added to the company, listening time will increase.
So, whether it\'s music, podcasts or audiobooks, streaming audio is good for Sonos.
In any case, increasing the audience\'s participation is a pleasant ride for Sonos.
The company has repeatedly said that cash flow is expected to be positive from now on.
Therefore, regardless of EPS profitability, the balance sheet will become better over time.
The data from YChartsTo illustrate my point of view, if you look at the chart above, the current assets increase over time while the total liabilities (red line)
Stable or declining.
Over time, the amount of working capital should grow in one quarter.
How will Sonos deal with these excess working capital?
The company did not disclose any details, saying it might make an acquisition.
Patrick Spence, CEO at the conference call: In other words, the company has enough room for acquisitions and new product introductions, which may increase growth in the future.
A with a strong balance sheet can easily implement such a strategy.
Regarding the new product, the company has launched a new product category called Building Solutions.
Sonos has introduced speakers for outdoor use, and Sonos Amp is now targeting Sonance in-wall and in-
Talk speakers.
I think this new category will sell very well and it will probably become a full
Open throughout the year.
Hopefully this will eliminate the seasonality of sales.
Please note that the company does have many product categories such as headphones.
So while we don\'t currently know the company\'s roadmap for new products, it\'s important to keep in mind that it may have a roadmap.
After the Ikea cooperation in December 20, Sonos and IKEA announced the \"experience of future home sources \".
After several delays, the company announced that the Symfonisk series of speakers will start selling at Ikea stores on August.
Ikea pictures show a $99 shelf speaker and a $179 desk lamp speaker.
There are rumors that the number of Symfonisk speakers will expand in the future, but only the above two speakers are currently displayed.
A lot of people don\'t realize this, but Sonos is not as well known as Apple (AAPL)or Ford (F).
Most people in AmericaS.
Europe does not know what the Sonos speakers are.
In many other countries around the world, most people don\'t know that you can control the speakers through the app.
As a result, when Ikea began selling these speakers in 424 stores around the world (
As of November 2018)
More and more people will be familiar with the brand Sonos.
So this will lead to an increase in Sonos product revenue over time.
I don\'t know what the expectations of these speakers are, but in the long run (
And depending on the number of speakers introduced)
I think this is a good business for both companies.
I think the biggest reason to buy Sonos is the valuation.
At present, the trading income of the stock is about 1X.
It\'s hard to find such a low valuation right now because the company is a leader in its field, a well-known brand, and has a solid balance sheet.
Personally, given the new product category and the Ikea partnership, the guidance of 10% revenue growth is very conservative.
While I personally don\'t have a specific percentage of revenue growth for 2019, I think we\'ll be surprised in the third and fourth quarters.
But even if the company did about $1.
26 billion of the income is used as a guide, and then the conservative valuation is 1.
5X income is 50
Shares rose 60% from current levels.
Of course, profitability also needs to increase, but in many cases, even if there is no profit or cash, the company will trade in a higher multiple. flow positive.
Technically, Sonos\'s stock has been at $10-
$12 in the past few months.
At present, the stock has revised about 10% from the $12 deal.
While it is possible to go back to $10, I will start buying at the current level and if the price falls further I will start to fall on average.
If the stock falls below $12 or more, then I think it is fair to say that the trend has changed and a long-term upward trend has been established.
Sonos may not be high-
Growth stock selection, but if the trend of online audio, this is a stock with a lot of room for growth (in all forms)
Continue to increase.
In addition, at the current level, its valuation is convincing and the margin of safety is very high.
At present, there are 6 analysts in Sonos stock, one of whom has exceeded the rating, and three have bought and not sold.
Sonos stock currently has an average price target of $16.
This means that it is up about 35% from the current level.
However, according to how the partnership with IKEA develops, the current price target may increase significantly.
For me, I think Sonos\'s stock will easily double in the next 12 months or so.
On the one hand, the stock has the lowest valuation, and secondly, with the support of the Ikea partnership, I expect revenue growth to be higher than current guidance.
I am/We are longsuo.
This article was written by myself and expressed my views.
I received no compensation (
In addition to Seeking Alpha).
I have no business relationship with any stock company mentioned in this article.
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