Despite video game stocks like Activision Blizzard, Inc. (NASDAQ:ATVI) and Electronic Arts Inc (NASDAQ:EA) enjoying nice gains lately, Sony Corp ADR (NYSE:SNE) hasn’t been participating. So what gives with Sony stock?
While gaming is a big portion of sales and earnings, Sony is made up of more than just the revenue it gets from its Playstation console, gaming network and in-store video game sales. Presently though, there are other catalysts that could drive Sony stock higher.
Valuation and Growth
Fortunately for SNE bulls, they’re not stuck chasing a stock with negative growth and trying to assign a value to it. Instead, Sony has good (although not great) growth numbers and a reasonable valuation.
Analysts expect sales to grow about 3% this year to go along with 5% earnings growth. Keep in mind, this Japan-based company is not a domestic, tax-cut winner like many others in the SPDR S&P 500 ETF Trust (NYSEARCA:SPY).
Still, with earnings projections of $3.67 per share this year, Sony stock trades at just 12.5 times this year’s numbers. That’s a pretty low valuation, even if the growth here isn’t stellar. For what it’s worth, earnings growth is forecast to accelerate in 2019 to 6.3%, and both this year and next year’s earnings growth outpaces revenue growth. That bodes well for margins.
The Businesses
Sony operates more than just video games, although the segment happens to be in a solid secular trend. The climbing adoption rate of the PlayStation VR should help top-line figures this year too, particularly with a strong economic backdrop. Full-year gaming revenue and operating income increased ~18% and ~31% year-over-year, respectively.
But what else is there?
Don’t forget that Sony also has its entertainment segment, Sony Pictures, that benefits from the pretty solid showings at the theatre. Its music business also continues to do well, with sales up 23.5% year-over-year in fiscal 2018. Home Entertainment & Sound also continues to do well, with sales up ~18%.
This is Sony’s second-largest business segment, so its operating income gain of ~47%, which far outpaces sales growth, is great for shareholders.
Finally, Sony also has a semiconductor business, and it’s no secret how well semis have been doing. Sales climbed 10% in fiscal 2018 while operating income swung from a loss of 7.8 billion yen to a profit of 168 billion yen, (an approximate $72 million loss to a $1.55 billion gain).
So as you can see, SNE has a reasonable valuation, decent growth and diversified portfolio of businesses.
Trading Sony Stock
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The last catalyst to owning SNE stock? A potential breakout.
Perhaps those who are bullish but aren’t long should wait for that to happen. There’s pretty clear downtrend resistance in SNE stock right now. Should Sony push through that mark, it could be off to the races. Where prices currently stand, that would also push SNE above its 50-day and 100-day moving averages.
That would be an encouraging sign for bulls. However, up 91% since the start of 2016 and SNE stock may need a longer term rest. On the downside, a break below the 200-day moving average would be worth re-evaluating SNE stock.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
