Shares of Sonos (NASDAQ:SONO) have come under intense pressure since the company reported earnings. In fact, Sonos stock actually fell 22% on Tuesday, bringing the stock’s year-to-date rally to just 10%.
While a 10% rally is good for any stock in a six-week stretch, Sonos investors may feel differently. That’s considering that Sonos stock closed above $21 on Monday, the day of earnings, and was actually trading pretty well leading up to that. As of Monday’s close, shares were sporting IPO-to-date gains of more than 40%.
To say Tuesday’s plunge was discouraging would be an understatement.
A Rocky Road for Sonos Stock
It’s been a bumpy road for Sonos stock — and that’s even before the company’s earnings-related plunge. It originally planned to set an IPO price between $17 and $19, before having to lower down to $15.
Despite the lack of demand for Sonos, a few weeks ago the stock received plenty of positive analyst initiations. Goldman Sachs slapped a $25 price target on the name, while Morgan Stanley and Stifel issued $20 price targets. Raymond James assigned an outperform rating on the name.
To get to $20, SONO stock would need to rally more than 20% from current levels. While those targets look ambitious now, shares were already trading near $20 back in late-August when they were assigned. That didn’t stop investors from bidding the stock higher ahead of its earnings result, pushing Sonos up more than 13% on Monday.
After the close, Sonos reported revenue of $208.4 million, slightly ahead of expectations. However, sales fell 6.6% year-over-year, which isn’t a great figure to see in such a recent IPO. I mean, even poorly received IPOs — Snap (NYSE:SNAP) is one that comes to mind — do not generally have negative revenue growth, particularly in its first quarter as a public company.
Earnings came in at a loss of 45 cents per share, not quite double the 26-cent per share loss from the same quarter a year ago. Full-year revenue guidance was about in-line with expectations.
With an uptick in unit sales but a decrease in revenue, it’s clear that margins are under pressure here. It doesn’t help that the space has a lot of competition, be it from Apple (NASDAQ:AAPL), Bose, and even Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) to some extent.
Trading SONO Stock
Click to Enlarge
Below that important mark and there may be some decent support down in the $16.50 to $16.75 area.
Considering that Sonos is on the cusp of breaking below this range, it’s not out of the question to ask whether the $15.50 lows or the $15 IPO price are in jeopardy too.
We’ll have to see how this area holds up over the next day or two to determine whether SONO stock is a solid risk/reward buy down here.
Support is in question, but resistance is not as the latter is clearly visible. Sonos stock rallied up the underside of uptrend support and was promptly rejected in Tuesday’s trading session. If there is a rebound to this level in the short to intermediate term, see how it handles this mark. If $16.50 gives way as support, it will also be worth investors’ time to see how Sonos does on any subsequent retests when it rallies, to see if it will be resistance.
When SONO stock rallied big into the print, those who bought became trapped once the stock incurred this massive gap down. It’s left a lot of investors trapped between $20 and $21. As a result, I would expect Sonos stock to feel a lot of selling pressure on rallies into this zone.
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.
