Sony Stock Will Reflect Expectations… Even If It Doesn’t

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Sony (NYSE:SNE) will report earnings before market open on Friday. Wall Street predicts the gaming, electronics and media giant will see lower profits for Sony stock on slightly higher revenues.

Unfortunately, this report appears poised to become a metaphor for SNE’s history. Over the years, Sony has produced successful products. However, management blunders and other failed products have prevented SNE stock from taking off. Until the company’s quarterly reports can show a consistent string of successes, prospective buyers should avoid Sony stock.

Wall Street Expects Lower Earnings, Higher Revenues

For the third quarter of fiscal 2019, analysts forecast a profit of $1.82 per share on revenue of $23.64 billion for SNE stock. This will represent a significant drop in profits along with a modest increase in revenue over the last year. The company earned $2.06 per share on revenues of $23.52 billion in the same quarter the previous year.

To be sure, Sony has shown periodic moments of genius and innovation. It has enjoyed continuous success with its PlayStation gaming console. In 2017, the PlayStation sold more units than the Xbox from Microsoft (NASDAQ:MSFT) or the Switch from Nintendo (OTCMKTS:NTDOY).

Also, my InvestorPlace colleague Josh Enomoto spent several years as an employee of Sony. He points out Sony’s niches in mirrorless cameras and its move into content with the acquisition of EMI Music Publishing. He also spoke well of the upcoming Xperia XZ4 smartphone. Equipped with the Snapdragon 855 chipset from Qualcomm (NASDAQ:QCOM), he believes it will become as well-regarded as the iPhone from Apple (NASDAQ:AAPL) or the Galaxy that Samsung (OTCMKTS:SSNLF) makes.

Sony Stock Marred by Inconsistency

Enomoto’s optimism regarding Sony may well prove correct. Still, Sony stock will have to produce one thing before more analysts call it a buy — consistency. The forward price-to-earnings (PE) ratio stands at around 11.4. Since that comes in well below historical multiples, one might assume that will go up. However, SNE stock lacks an active catalyst to bring about that growth. Whether one looks at distant history or the recent past, Sony has not been successful in sustaining profit growth.

Analysts predict 43.1% profit growth this year. However, for the next fiscal year, they forecast that profits will fall by 14.4%. Wall Street also believes average annual profit growth will come in at 9.4% over the next five years. Still, if that means alternating between profit growth and reduced earnings, it will probably struggle to gain traction.

Sony stock has shown this kind of performance for decades. As a result, it fails to gain any long-term traction. Even when counting for split and dividend adjustments, SNE first achieved its current price of about $49 per share back in 1999! The stock again achieved similar levels in 2007 — right before the 2008 financial crisis.

In the end, investors have to look at Sony stock en todo and not judge it for its successes or its failures. Sony has enjoyed great success with its PlayStation. If Mr. Enomoto’s prediction proves correct, it could also find success in the smartphone market.

However, its legacy of failures has long weighed on the stock as well. Until we see that its long-term record of inconsistency has come to an end, Sony stock will be good for little more than short-term trades.

The Bottom Line on Sony Stock

The future of Sony stock does not hinge on one strong quarterly report, but on producing successive reports showing a pattern of consistent growth. Analysts expect lower profits and slightly higher revenues when Sony reports its third quarter 2019 earnings on Friday. Assuming the results meet expectations, it will mean that Sony is producing more of the same on the earnings front.

That “same” amounts to inconsistency. Sony has found success with its PlayStation and some smaller niches. However, product failures and company missteps have left the company with uneven profit growth. This has led to a stock that trades at levels first seen 20 years ago.

Unfortunately, the earnings report will likely reflect the company’s history of uneven performance. If Sony could find increased success in its non-gaming markets and a path to consistent growth, I think SNE would follow. However, as long as revenue and earnings growth remains spotty, I predict more frustration for Sony stock bulls.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.

 


Article printed from InvestorPlace Media, https://investorplace.com/2019/01/sony-stock-reflect-expectations-even-doesnt-nimg/.

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