Sony (NYSE:SNE) stock again faces a crossroads after the company’s chairman, Kazuo Hirai, announced that he would step down.
Hirai spent 35 years with the company and served as CEO from 2012 until 2018. Many credit him with Sony’s revival and the rejuvenation of Sony stock.
However, much as when Hirai became CEO in 2012, he is departing at a time when Sony must redefine itself. Due to this uncertainty, investors should probably avoid Sony stock in the near-term.
Hirai Revived Sony Stock
When Hirai started with SNE in the 1980s, many considered Sony the Cadillac of electronic brands, as its products lead the industry. However, innovations from Apple (NASDAQ:AAPL) and other companies made many of its electronic products obsolete. Moreover, companies such as Samsung (OTCMKTS:SSNLF) and LG eroded its edge in televisions. Sony stock, which surpassed the $150 per share mark at the height of the dot-com bubble, flirted with single digits just after Hirai first became CEO.
Hirai revived the fortunes of the company. He returned Sony to profitability and brought about the consistent profit growth that had long eluded the company. He accomplished this in part by boosting the PlayStation brand. Thanks to the Sony PlayStation 4, Sony has led the market in video-game console sales since 2014. He also unloaded many unprofitable businesses.
As a result, Sony stock resumed its climb about a year after Hirai took over. By the time he stepped down as CEO in April 2018, SNE stock had risen to $48 per share. SNE reached its 52-week high of $61 per share in September 2018, only to drop during last fall’s tech selloff.
Sony Must (Again) Reinvent Itself
Under current CEO Kenichiro Yoshida, SNE again faces uncertainty as it seeks to become the market-share leader of more sectors.
I expect its success in gaming to continue. I also agree with InvestorPlace contributor and Sony bull Josh Enomoto that streamed-gaming platforms such as Alphabet’s (NASDAQ:GOOGL, NASDAQ:GOOG) Stadia will not pose much of a threat to SNE or to Sony stock.
However, Sony’s position in other industries appears to be less certain. The company just announced that it was closing its smartphone plant in China, shifting all of its production to Thailand. Sony is seeking to segue into the burgeoning 5G wireless market. However, since SNE has less than 1% share of the smartphone market, the success of that goal remains far from certain.
SNE also plans to pursue a new strategy with its streaming service, Crackle. It will become the secondary partner of the venture, as Chicken Soup for the Soul Entertainment (CSS) leads the way in launching Crackle Plus. Crackle has not posed much of a threat to Netflix (NASDAQ:NFLX) or any of its peers. It has shut down its operations in Canada and Latin America. Also, its most popular series, “Comedians in Cars Getting Coffee,” recently moved over to Netflix.
Sony Stock Is the Real Concern
However, my biggest concerns involve SNE stock itself. For a long time, Sony stock has not been able to rise above $60 per share. Since the dot-com bust, SNE stock has approached $60 per share three times, only to pull back each time. The first attempt occurred back in 2002. The latest pullback from that level has happened over the last six months.
Unfortunately, the longtime inability of Sony stock to exceed $60 has continued. SNE stock failed to recover with its tech peers after reaching a low on Dec. 24. After a short-term spike, the pullback continued. Today, SNE trades at around $43 per share, not far from its 52-week low.
Moreover, analysts see SNE alternating between annual profit growth and profit contraction through at least 2021. That makes the relatively low, 10.8 forward price–earnings ratio of SNE stock less appealing. Unless Sony can return to consistent profit growth, I think the stock’s inability to exceed its $60 per share price ceiling will continue.
Concluding Thoughts on Sony Stock
Given the uncertainty of Sony and SNE stock, investors should avoid the shares. During. Hirai’s tenure, SNE returned to profitability and consistent growth. But unfortunately for the company, it has failed to find a consistently successful niche outside of gaming.
As a result, Sony finds itself making major decisions about the future of some of its divisions. Also, unlike most of its tech peers, it has seen its stock fall since late December.
With SNE trading at about $42 per share, its near-term direction appears uncertain. Still, the key obstacle involving SNE stock remains the price ceiling. Until Sony stock can consistently trade above $60 per share, it will remain, at best, suitable for short-term trading.
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.
