Here's Why Sonos Stock Jumped 22% During February
Shares of premium speaker company Sonos (NASDAQ: SONO) jumped 21.7% during February, according to data provided by S&P Global Market Intelligence. The stock jumped higher early in the month after the company reported quarterly financial results. And it held on to gains even after a report suggested it's having trouble with a new product.
On Feb. 6, Sonos reported financial results for the fiscal first quarter of 2024 -- a three-month period that ended on Dec. 30. It's true that the company's Q1 revenue was down 9% from the prior-year period. But the market was excited nevertheless because its revenue far surpassed what analysts had expected.
Investors may have also been upbeat because Sonos' management continuously teased a new product that's coming out in the fiscal third quarter. Launching new products in new categories is part of the company's long-term growth strategy. So it makes sense why this could excite investors.
According to a report from Bloomberg on Feb. 27, this new product from Sonos will be headphones -- something the company doesn't offer today. However, this same report said that the company is having problems with its software and will consequently delay the launch of its headphones until late June.
Sonos stock didn't skip a beat on this product-delay rumor. The company outperformed Q1 expectations and has plans for growth. This appears to be all that mattered to investors during February.
Should investors be worried?
For fiscal 2024, Sonos' management expects to generate revenue of $1.7 billion, at most, which would only be 3% year-over-year revenue growth. Embedded within this guidance is the assumption that its new products will generate $100 million in revenue, which is substantial. And most of this is expected to come from the product in a new category, which is presumably headphones.
If the Bloomberg report citing anonymous sources is accurate, then the launch of Sonos' headphones could come on the final day of Q3 -- later than intended. This could potentially cause the company to come up short of full-year guidance.
This outcome is possible and the market likely won't like it if it happens. But long-term investors should think differently. It's important to get the new product right and delaying the launch could help ensure that. Moreover, coming up short for sales in a quarter is meaningless in the grander scheme.
The bigger picture for Sonos
According to Sonos, there are 15.3 million households with at least one product from Sonos. However, the average household has three products from the company. Therefore, it stands to reason that entering new product categories is a big deal. In theory, it introduces more consumers to the brand who will then buy more products in time.
Even with declining revenue and the potential for a product delay, Sonos is a profitable company with zero debt. So no need for investors to worry there. Moreover, the stock is cheap at just 1.5 times its trailing sales, which should mitigate the downside risk if there's an operational hiccup in the coming year.
Should you invest $1,000 in Sonos right now?
Before you buy stock in Sonos, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Sonos wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
*Stock Advisor returns as of February 26, 2024
Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Sonos. The Motley Fool has a disclosure policy.
Here's Why Sonos Stock Jumped 22% During February was originally published by The Motley Fool
