Sony Corp (ADR) Stock Gets Back on the Right Track

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When it comes to consumer technology companies, it is extremely tough to pull off a turnaround.  Often these operators eventually fade away, as seen with Kodak and Palm. The fact is that it can be difficult to  reinvigorate a brand that has become, well, an anachronism.

Sony Corp (ADR) (SNE) Stock Gets Back on the Right Track
Source: xurleykid

There are exceptions, of course.  Perhaps the most prominent example is Apple Inc. (NASDAQ:AAPL), which was on the verge of bankruptcy in the mid-1990s. Yet, Steve Jobs was able to transform the company and build a juggernaut. Interestingly enough, we may be seeing another case of a turnaround in the form of Sony Corp (ADR)(NYSE:SNE).

Not long ago, the company seemed to be irrelevant and headed for the dustbin. Yet, management has somehow been able to get things back into gear. As a result, SNE stock has rallied, with the shares up 61% during the past 12 months.

OK then, so is the company truly on the mend? Or is the recent transformation a temporary thing?

Granted, turnarounds can be choppy, but I think SNE has the makings for a durable growth path.

The Growth Story for SNE Stock

In late October, SNE announced that the fiscal year operating profits would be the highest in the company’s history — $5.56 billion. This was actually 26% higher than the prior forecast.

The growth, however, is not just due to a certain part of the business. In fact, most of the segments are doing quite well and there are few signs of a slowdown.

Here are some highlights:

  • Game & Network Services (G&NS): Sales jumped 35.4% during the quarter, as the PlayStation 4 system continues to gain traction against tough rivals like Nintendo Co., Ltd (ADR)(OTCMKTS:NTDOY) and Microsoft Corporation (NASDAQ:MSFT). SNE upped its fiscal year forecast by 1 million units to a total of 19 million. Of course, PlayStation 4 platform provides a strong ongoing monetization stream from subscriptions and downloads. Consider that the system commands 57% of the global console market.

    As InvestorPlace’s Dana Blankenhorn has noted: “Sony’s gaming franchise gives it strength rivals like 21st Century Fox Inc. (NASDAQ:FOXA) and Walt Disney Co. (NYSE:DIS) lack. It is gaming that is soaking up the time of younger consumers, not movies or cable, something older analysts raised on TV still don’t understand.”

  • Semiconductors: The prior quarter saw revenues increase by 17.9%. A key driver was the demand for image sensors, which have been critical for next-generation features like facial recognition for Apple Inc.’s iPhone X. Oh, and the technology has also proven effective for the fast-growing automotive market. To this end, SNE has been integrated with systems from Intel Corporation‘s (NASDAQ:INTC) MobileEye.
  • Music: Revenues rose by 37.5% during the latest quarter. While there was growth from digital streaming, there was also a nice lift from the “Fate/Grand Order” mobile game, which has turned out to be a blockbuster.
  • Films: SNE continues to churn out hit movies, as this business segment posted a 27% increase in sales. Of course, a major boost came from Spider-Man: Homecoming.  It is also important to note that there is positive buzz for the upcoming Jumanji: Welcome to the Jungle film.

Bottom Line on SNE Stock Price

The road back for Sony has been a long one. But CEO Kazuo Hirai, who took the helm in 2012, has made the right moves. If anything, he has taken the approach of focusing on long-ranging investments that should provide for sustainable returns.

And even with the recent run-up in SNE stock, I still think there is further potential on the upside. The company has a set of assets that are keyed to major trends.  What’s more, the company’s legacy businesses, such as in TVs, are still showing decent performances.

As for the valuation on SNE stock, it is still fairly reasonable, with a forward price-to-earnings multiple of 17.  But there appears to be significant earnings power, as evidenced by the latest quarterly report.  So, the valuation may actually be understated.

And finally, when a company is in the turnaround phase, there is often lots of momentum, which can continue for some time.

In other words, SNE stock looks like a pretty good bet for investors.

Tom Taulli is the author of High-Profit IPO StrategiesAll About Commodities and All About Short SellingFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2017/12/sony-sne-stock-right-track/.

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