Just like a backup quarterback who jumps to his or her feet when called upon to go into the game, I was ready for action when my editor called my number regarding Sony Corp (ADR) (NYSE:SNE) and SNE stock.
I’ll be honest, the last time I gave an opinion on Sony might have been in the George W. Bush years. I really can’t remember.
However, like Tom Brady who took the field in Week 2 of the 2001 NFL season and never looked back, I’m hoping for the same success — so here goes.
Down and Out
The Sony that I remember was losing money and revenues were dwindling circa 2008. In fiscal 2009 ended March 31, 2009, Sony delivered a 13% decrease in revenues to $76.8 billion with a $2.3 billion loss.
Every one of the company’s operating segments had seen three consecutive years of declining revenue by that point, so it’s not surprising that the SNE stock price was less than half where it is today and well off its all-time high of $157.38, set in February 2000.
SNE stock is now around $48 and trading within 1% of a five-year high. Although it hasn’t traded above $60 since July 2001, is $60 the next stop?
Let’s consider the reasons why its climb back from oblivion might just be getting started.
The Sony of Today
InvestorPlace’s William White examined Sony’s second-quarter earnings report Oct. 31, and there was a lot to get excited about, including a 346% increase in its operating income from an 18% increase in revenues.
These are numbers every investor likes to see but no one more so than those owning SNE stock like InvestorPlace’s Josh Enomoto. Not only does Enomoto own Sony stock, but he worked at the company for nearly eight years, so he knows a thing or two about how it ticks.
“From my perspective, because Japanese culture is so unique compared to our laissez-faire attitudes, western leadership doesn’t work for Sony,” Enomoto wrote Nov. 27. “That’s why I was particularly glad when Kazuo Hirai took over the helm. Hirai has an approachable, even affable, personality, but his inner core is as tough as nails. He’s the ultimate Japanese salaryman.”
Enomoto sees a different company today than the one he experienced while working at Sony, and that’s a good thing. Using the example of the company’s digital cameras, he points out that the company is finally delivering what the customer wants rather than keeping management happy.
The result is much higher profits and since stock prices follow earnings, a higher SNE stock price to boot.
Bottom Line on SNE Stock
The one financial metric that has me cautiously optimistic that Sony is on course to $100 or beyond rather than back into the $30s is free cash flow.
Sony’s free cash flow for the trailing 12 months is 735.6 million Japanese yen, considerably higher than at any time in the past decade. Translated to U.S. dollars, that’s $6.6 billion or better than 10% of its current market cap.
There are some at InvestorPlace who feel SNE stock has hit a wall; I’m not one of them. If someone like Enomoto, who worked at the company, thinks the party is just getting started, I’m inclined to agree.
Not just because he says so, but the fact earnings don’t lie. The Q2 numbers were top flight.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
