Speaker and sound equipment maker Sonos (NASDAQ:SONO) has been overtaken with static over the past year. SONO stock has slipped more than 40% over the past 12 months following a sizable rally during the Covid-19 pandemic. With the recent dip to $21 per share, Sonos is now trading back to around the original $20 level it sold for following its initial public offering (IPO) in 2018.
There is a perception out there that Sonos was just another stay-at-home beneficiary stock now set to give back all its recent performance. And, on a surface level, that makes sense. People were stuck at home, and it was a great time to upgrade one’s audio equipment. So perhaps that drove some incremental sales that won’t be recurring in the future.
However, Sonos is different from many stay-at-home winners in a big fundamental way: profitability. Sonos was already profitable prior to the pandemic, and didn’t need to ramp up its marketing or operational expenses to a tremendous degree to navigate 2020 and 2021. Companies like Peloton (NASDAQ:PTON) actually saw their losses accelerate in 2021 as they rushed to spend more to meet the temporary influx of demand. Now that sales of indoor fitness equipment have dropped back to more normal levels, Peloton is running larger losses than ever, and PTON stock has crashed.
Sonos, by contrast, had a more steady and predictable business model and thus didn’t have to overreact in 2021. Sonos’ revenue trajectory shows this. It brought in $993 million of sales in fiscal year 2017, $1.14 billion in 2018, $1.26 billion in 2019, $1.33 billion in 2020, and $1.72 billion in 2021. This shows that Sonos has had a steady growth trajectory for many years and isn’t just living off a temporary boost from stay-at-home shoppers.
Analysts see Sonos growing revenues again in 2022, albeit it at a slower pace than in 2021. Shares also go for just 12 times estimated forward earnings. Looking further out, for fiscal 2023, analysts see more than 10% top-line revenue growth, and earnings per share jumping another 18%. If these targets are achieved, Sonos would trade for just 10 times 2023 earnings.
Part of Sonos’ ability to keep growing is that it is innovative. It has expanded its core product line over the years, and it is reportedly looking to move into adjacent fields as well. Protocol recently reported that Sonos is looking into developing a TV streaming/home theater operating system application. This, if successful, could significantly broaden Sonos’ appeal to consumers. In any case, Sonos is more than just a company that enjoyed a brief uptick from stay-at-home led demand. The company is highly-profitable and still has solid growth prospects ahead of it in a post-pandemic economy. This could lead SONO stock to a solid recovery over the next six to twelve months.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.