Sonos, Inc. (SONO) and its subsidiaries create, develop, produce, and distribute multi-room audio devices across the Americas, Europe, the Middle East, Africa, and the Asia Pacific. It sells its products through some 10,000 third-party retail stores, including custom installers of home audio systems, e-commerce retailers, and its website, sonos.com. SONO is headquartered in Santa Barbara, Calif.

The shares of the consumer electronics company have risen 14.8% in price over the past month, mostly in response to news that Standard & Poor's has added the stock to its S&P 600 Small Cap Index. However, the stock has slumped 33.4% over the past year and 16.4% over the past six months to close yesterday's trading session at $26.78. In addition, the stock is currently 40.1% below its 52-week high of $44.72.

Although SONO reported stable revenue growth in the last reported quarter, the decline in its operating income and net income we think make its prospects look uncertain.

Here is what could shape SONO's performance in the near term:

Mixed Financials

SONO's revenue increased 2.9% year-over-year to $664.48 million for the first quarter, ended Jan. 01, 2022. Its cash and cash equivalents grew 17.9% for the three months ended January 01, 2022, to $754.42 million.

However, its operating income has declined 3.5% from the prior-year quarter to $132.59 million. In addition, the company's net income declined 6.7% from its prior-year quarter to $123.48 million, while its EPS decreased 13.9% year-over-year to $0.87 over this period.

Mixed Profitability

SONO's 47.7% trailing-12-months gross profit margin is 31.9% higher than the 36.2% industry average. However, its 11.3% trailing-12-months EBITDA margin is 10.8% lower than the 12.7% industry average. Also, 2.3% its trailing-12-months CAPEX/Sales multiple is 11.5% lower than its 2.6% industry average.

Stretched Valuation

In terms of forward Non-GAAP P/E, the stock is currently trading at 14.24x, which is 14.2% higher than the 12.5x industry average. Also, its 1.70x forward Price/Sales is 87.6% higher than the 0.91x industry average. Furthermore, SONO's 5.13x forward Price/Book is 103.5% higher than the 2.52x industry average.

POWR Ratings Reflect Uncertainty

SONO has an overall C rating, which equates to a Neutral in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. SONO has a D grade for Growth and Stability. The company's mixed financials and profitability are consistent with the Growth grade. In addition, the stock’s 1.83 beta is in sync with the Stability grade.

Of the 48 stocks in the C-rated Technology – Electronics industry SONO is ranked #31.

Beyond what I have stated above, one can view SONO ratings for Momentum, Quality, Value, and Sentiment here.

Bottom Line

While the company reported stable revenue growth despite the ongoing supply chain crisis and other industry-wide headwinds, its operating income and net income declined considerably in the last reported quarter. In addition, analysts expect its EPS to decline 41.7% in the current quarter (ending March 31, 2022). Therefore, we believe investors should wait before scooping up its shares.

How Does Sonos Inc. (SONO) Stack Up Against its Peers?

While SONO has an overall C rating, one might want to consider its industry peers, Arrow Electronics Inc. (ARW) and Wayside Technology Group Inc. (WSTG), which have an overall A (Strong Buy) rating.

SONO shares were unchanged in premarket trading Friday. Year-to-date, SONO has declined -10.13%, versus a -5.22% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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