Standing out among the Street's worst performers today is Sony, a consumer electronics company whose shares slumped -3.1% to a price of $21.69, 10.64% below its average analyst target price of $24.27.
The average analyst rating for the stock is buy. SONY lagged the S&P 500 index by -3.0% so far today and by -10.0% over the last year, returning 17.6%.
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 considered a consumer defensive, or non cyclical consumer company. The idea behind its so-called defensiveness is that its sales -- and by extension, its stock prices -- tend to remain stable during periods of economic recession.
This is because consumers tend to buy staples even when they see their discretionary income reduced. They will cut spending in other areas before they cut their spending on staples. The share prices of defensive tend to remain stable during periods of economic growth too, so their reduced volatility involves a possible trade off with respect to performance potential.
Sony's trailing 12 month P/E ratio is 18.1, based on its trailing EPS of $1.2. The company has a forward P/E ratio of 18.2 according to its forward EPS of $1.19 -- which is an estimate of what its earnings will look like in the next quarter. As of the third quarter of 2024, the average Price to Earnings (P/E) ratio for US consumer staples companies is 23.09, and the S&P 500 has an average of 29.3. The P/E ratio consists in the stock's share price divided by its earnings per share (EPS), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.
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 $1.37 Trillion as of its most recent annual report. Over the last 4 years, the company's average free cash flow has been $935.92 Billion and they've been growing at an average rate of 8.2%. With such strong cash flows, the company can not only re-invest in its business, it can afford to offer regular returns to its equity investors in the form of dividends. Over the last 12 months, investors in SONY have received an annualized dividend yield of 84.9% on their capital.
Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts). 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 3.3 as of the third quarter of 2024.
Since it has a Very low P/E ratio, an exceptionally low P/B ratio., and generally positive cash flows with an upwards trend, Sony is likely undervalued at today's prices. The company has poor growth indicators because of a negative PEG ratio and decent operating 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.
