Sony Falls Today As Investors Bail Out.

Consumer Electronics company Sony is taking Wall Street by surprise today, falling to $91.05 and marking a -3.0% change compared to the S&P 500, which moved -1.0%. SONY is -27.16% below its average analyst target price of $124.99, which implies there is more upside for the stock.

As such, the average analyst rates it at buy. Over the last year, Sony has underperfomed the S&P 500 by -2.0%, moving 9.6%.

Sony Group Corporation designs, develops, produces, and sells electronic equipment, instruments, and devices for the consumer, professional, and industrial markets in Japan, the United States, Europe, China, the Asia-Pacific, and internationally. The company is in the consumer defensive sector. It markets so-called staple goods and services that consumers tend to purchase regardless of their discretionary income. Thus, sales revenue tends to remain relatively unchecked by economic downturns, which in turn can contribute to share price stability. The flipside is that defensive stocks may see comparatively little growth during periods of economic growth.

Sony's trailing 12 month P/E ratio is 17.0, based on its trailing EPS of $5.34. The company has a forward P/E ratio of 13.8 according to its forward EPS of $6.6 -- which is an estimate of what its earnings will look like in the next quarter. The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the first quarter of 2023, the consumer staples sector has an average P/E ratio of 24.36, and the average for the S&P 500 is 15.97.

To better understand SONY’s valuation, we can divide its price to earnings ratio by its projected five-year growth rate, which gives us its price to earnings, or PEG ratio. Considering the P/E ratio in the context of growth is important, because many companies that are undervalued in terms of earnings are actually overvalued in terms of growth.

Sony’s PEG is 2.61, which indicates that the company is overvalued compared to its growth prospects. Bear in mind that PEG ratios have limits to their relevance, since they are based on future growth estimates that may not turn out as expected.

To understand a company's long term business prospects, we must consider its gross profit margins, which is the ratio of its gross profits to its revenues. A wider gross profit margin indicates that a company may have a competitive advantage, as it is free to keep its product prices high relative to their cost. After looking at its annual reports, we obtained the following information on SONY's margins:

Date Reported Revenue ($ k) Cost of Revenue ($ k) Gross Margins (%) YoY Growth (%)
2023-03-31 11,539,837,000 8,398,931,000 27.22 -0.04
2022-03-31 9,921,513,000 7,219,841,000 27.23 0.52
2021-03-31 8,999,360,000 6,561,559,000 27.09 -4.17
2020-03-31 8,259,885,000 5,925,049,000 28.27 n/a
  • Average gross margin: 27.5 %
  • Average gross margin growth rate: -0.9 %
  • Coefficient of variability (higher numbers indicating more instability): 2.0 %

We can see from the above that Sony's gross margins are very strong. Potential investors in the stock will want to determine what factors, if any, could derail this attractive growth story.

To deepen our understanding of the company's finances, we should study the effect of its depreciation and capital expenditures on the company's bottom line. We can see the effect of these additional factors in Sony's free cash flow, which was $-298944000000.0 as of its most recent annual report. The balance of cash flows represents the capital that is available for re-investment in the business, or for payouts to equity investors as dividends. The company's average cash flow over the last 4 years has been $560.37 Billion and they've been growing at an average rate of -33.3%. SONY's weak free cash flow trend shows that it might not be able to sustain its dividend payments, which over the last 12 months has yielded 79.9% to investors. Cutting the dividend can compound a company's problems by causing investors to sell their shares, which further pushes down its stock price.

Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (its share price divided by its book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method. Sony's P/B ratio of 0.02 indicates that the market value of the company is less than the value of its assets -- a potential indicator of an undervalued stock. The average P/B ratio of the Consumer Staples sector was 4.29 as of the first quarter of 2023.

Since it has a lower P/E ratio than its sector average, an exceptionally low P/B ratio, and a deteriorating pattern of cash flows with a downwards trend, Sony is likely fairly valued at today's prices. The company has mixed growth prospects because of a negative PEG ratio and strong margins with a stable trend. We hope you enjoyed this overview of SONY's fundamentals. Be sure to check the numbers for yourself, especially focusing on their trends over the last few years.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.