What a brutal six months it’s been for Sonos. The stock has dropped 24.2% and now trades at $10.31, rattling many shareholders. This might have investors contemplating their next move.

Is now the time to buy Sonos, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Do We Think Sonos Will Underperform?

Even with the cheaper entry price, we don't have much confidence in Sonos. Here are three reasons why SONO doesn't excite us and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Sonos grew its sales at a weak 2.5% compounded annual growth rate. This fell short of our benchmarks.

2. Operating Losses Sound the Alarms

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Sonos’s operating margin has been trending down over the last 12 months and averaged negative 3.7% over the last two years. Unprofitable consumer discretionary companies with falling margins deserve extra scrutiny because they’re spending loads of money to stay relevant, an unsustainable practice.

3. Previous Growth Initiatives Have Lost Money

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Sonos’s five-year average ROIC was negative 21.4%, meaning management lost money while trying to expand the business. Its returns were among the worst in the consumer discretionary sector.

Final Judgment

We cheer for all companies serving everyday consumers, but in the case of Sonos, we’ll be cheering from the sidelines. After the recent drawdown, the stock trades at 49.1× forward P/E (or $10.31 per share). This valuation tells us a lot of optimism is priced in - we think there are better investment opportunities out there. We’d suggest looking at the Amazon and PayPal of Latin America.

Stocks We Would Buy Instead of Sonos

Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.

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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.