The history of Sony Group (SONY) is an interesting one, from its beginnings in post World War II Japan to the current product offerings. It has introduced iconic electronic items such as the Walkman, the Watchman, and the Playstation. The electronics manufacturer still makes the Playstation and today’s product lineup includes smartphones, TVs, Blueray and DVD players, cameras, and various audio products such as speakers and headphones.

As fun as it is to look back on some of the product offerings of Sony, I am more interested in the stock today and what I believe is a great buying opportunity. The stock gets a “strong buy” rating from Tickeron’s scorecard and we will go over the factors for that in a minute. What first got my attention about the stock was the weekly chart and how a recent decline had put the stock in overbought territory for the first time in two years, at least based on the weekly stochastic indicators.

In addition to the bullish crossover from the weekly stochastic indicators, we also see how there is a trend line that connects the lows from March and October 2020. The recent pullback caused the stock to dip just below the trend line, but it didn’t close below the line three weeks ago. This suggests to me that there is pretty strong support in the area.

Huge Earnings Growth in Q4 Highlights Strong Fundamentals

Sony reported fiscal fourth-quarter earnings back in April and the company blew away estimates and the previous year’s results. The EPS came in at $0.81 and the consensus estimate was $0.37. The overall net income jumped 746.3% to $1.01 billion. Revenue jumped to $20.45 billion and that was an increase of 27% over Q4 2019 and it was $1.94 billion better than the consensus estimate.

Those figures marked big changes in the earnings and revenue growth, but earnings had been growing pretty steadily over the last few years. Earnings have grown by an average of 25% per year over the last three years. Revenue has stalled, only growing by 1% per year in the last three years.

I mentioned earlier that Tickeron’s Scorecard has Sony rated as a “strong buy” and if we look at the fundamental score we see four positive scores and only one negative one. The same can be said for the technical analysis screener.

The areas where the company scores well are the Profit vs. Risk Rating (6), the Outlook Rating (21), the SMR Rating (25), and a strong seasonality score. The figures in parentheses are the ratings and 1 is the best score while 100 is the worst score. The growth figures above help explain the strong readings in the SMR rating and the Profit vs. Risk rating. The lone area where the company scores below average is in the P/E Growth Rating.

As for the profitability measurements, Sony shows a return on equity of 25% and that is well above average. The profit margin is 13.02% and that is slightly below average.

The valuation ratings are pretty low after the recent earnings report. The trailing P/E is at 11.61 and the forward P/E is 18.42. Those figures are below average compared to the overall market as well as the consumer discretionary sector.

Sentiment toward Sony is Very Bullish

One area that concerns me a little is the sentiment toward Sony. There are currently 23 analysts covering the stock with 18 “buy” ratings and five “hold” ratings. This gives us a buy percentage of 78.3% and that is higher than the average stock. The average buy percentage falls between 65% and 75%, so Sony’s isn’t terribly high, but enough to warrant caution.

The short interest ratio also reflects above-average bullish sentiment. The current ratio is 1.26 while the average ratio is in the 3.0 range. Like the analysts’ ratings, this reflects a slight bullish skew toward the stock.

One thing I’m always cognizant of is putting sentiment indicators into perspective based on the fundamental and technical analysis. In the case of Sony the fundamentals are above average and the chart looks great. The sentiment should be a little more bullish than the average stock, but I am concerned that the indicators might be too bullish.

I am bullish on Sony and I agree with the “strong buy” rating from Tickeron’s Scorecard. The fundamentals are strong and the recent pullback found support at the upwardly sloped trend line. The stochastic indicators hit oversold territory for the first time since early 2019 and have made a bullish crossover since then. The concerns I have are the sentiment and the semiconductor shortage.

The chip shortage could make it difficult for Sony to meet the demand for its end products and that could earn revenue substantially in the next few quarters. With that being said, I would keep an eye on the trend line and the 52-week moving average. As long as the stock remains above those two lines, I will consider the trend to be upward.