Sonos, Inc. (SONO) shares soared following its fourth quarter fiscal 2023 earnings release on November 15 despite its big bottom-line miss.

Some of the recent comeback might have been driven by the fact that Sonos also announced a new stock repurchase program that same day. Still, Sonos sits at a Zacks Rank #5 (Strong Sell) right now because of its downbeat EPS estimates which have been cut substantially for FY24 and FY25 since its Q4 report. Plus, its surge has the stock looking a bit overheated.

The Basics

Sonos shipped its first product in 2005, helping usher in the modern, higher-end speaker era. Today, the speaker company competes in a somewhat crowded connected speaker space alongside Bose and other audio-focused firms, as well as global tech powers such as Apple.

Sonos specializes in wireless and multi-room sound systems, selling a range of sleek, connected speakers, subwoofers, soundbars for TVs, and more.

(Click on image to enlarge)

Image Source: Zacks Investment Research

Sonos went public in 2018 and its stock moved mostly sideways until the initial Covid market-wide selloff and the boom that followed. The speaker firm posted 29% revenue expansion in its fiscal 2021 and 2% growth in FY22 before seeing its revenue slide 5.5% YoY in its recently-reported fiscal 2023 period.

The company’s adjusted earnings fell from $1.24 to $0.92 in FY23. Current Zacks estimates call for Sonos’ adjusted earnings to slide another 12% in FY24 on marginally lower revenue.

SONO’s FY24 consensus estimate has slipped by 24% since its mid-November earnings release, with its FY25 estimate now 19% lower. These negative EPS revisions help it land a Zacks Rank #5 (Strong Sell) right now.

(Click on image to enlarge)

Image Source: Zacks Investment Research

Bottom Line

Sonos currently trades over 60% below its all-time highs. SONO stock is down 7% in 2023 vs. its industry’s 12% gain and the S&P 500’s 20% climb. The underperformance includes a roughly 40% surge since its Q4 release on November 15.

The rebound has Sonos attempting to retake its 200-day moving average. But the rapid rise pushed SONO into deeply overbought RSI territory vs. way oversold just a month ago. Sonos is also trading at 56.9X forward 12-month earnings, which marks a huge premium to its low-ranked industry’s 15.1X average. 

More By This Author: