3 Audio Video Stocks to Focus on From a Flourishing Industry

The Zacks Audio Video Production industry participants like Dolby Laboratories, Inc. DLB, Sonos, Inc. SONO and GoPro, Inc. GPRO are likely to benefit from investments in cutting-edge technology solutions that create better communication experiences. The players also stand to gain as they increase focus on direct-to-customer sales channels. Rapid technological advances, such as 4K, 8K and immersive audio formats, are boosting demand for new devices, which bodes well for participants like GoPro and Dolby.

However, global macroeconomic uncertainty amid escalating trade tensions, tariffs and associated inflationary pressure is likely to keep consumer spending in check. This does not bode well for the participants. A highly promotional environment and stiff competition from importers of comparatively low-priced devices are denting margins. Online accessibility of recording equipment and the availability of distribution channels on the Internet are additional headwinds. 

Industry Description

The Zacks Audio Video Production industry comprises television, speaker, video player and camcorder manufacturers. It includes companies that offer gaming consoles, drones and high-end cameras for individuals and industrial markets. These firms provide state-of-the-art audio, imaging and voice technologies that enhance entertainment and communication experiences. Some industry participants develop audio and imaging products, including digital cinema servers and products for film production and entertainment industries. Apart from providing theatrical and television production services for cinema exhibitions, broadcast and home entertainment, these companies work with film studios, content creators, broadcasters and video game designers. Some prominent players are present in the music and image-based software markets worldwide.

4 Trends Shaping the Future of the Audio-Video Production Industry

Technological Advancement to Spur Growth: From rapid technological advances like 4K, 8K and immersive audio formats, the demand for high-resolution visual and audio experiences is a major growth driver. The rise of streaming or OTT platforms is fueling this trend, as consumers and businesses seek to recreate a cinematic atmosphere at home.

Increasing Demand for Premium Entertainment: The industry performed well despite drastic changes in how media is consumed and distributed. The rise in demand for premium entertainment from record labels, TV producers and advertisers is likely to stoke profitable growth. Strong demand across all regions with a more direct-to-consumer, subscription-centric model bodes well for industry participants.

Macroeconomic Headwinds Likely to Hurt Consumer Demand: The global macroeconomic uncertainty, amid escalating trade tensions and tariffs, and associated inflationary pressures, are likely to keep consumer spending, especially discretionary purchases, in check. While companies keep investing in market share gains and supply chain resilience, a shortage of critical hardware components due to disruption in the supply chain could hurt revenues in the near term. Fluctuations in commodity pricing for different components are additional concerns. Elevated promotional activity to boost sales amid weak spending is also affecting the performance of these industry participants.

Aggressive Competition: In the United States, smart-connected televisions, microphones and speaker enclosures are the most popular electronic devices among customers. However, U.S.-based manufacturers of audio and video systems face intense competition from importers of comparatively low-priced devices, particularly from China, Vietnam and Mexico. These firms face stiff competition across all end markets, often leading to intense price wars and margin contraction.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Audio Video Production industry is housed within the broader Zacks Consumer Discretionary sector. It currently has a Zacks Industry Rank #103, which places it in the top 42% of more than 246 Zacks industries.

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.

Before we present a few audio-video production stocks you may want to consider for your portfolio, let’s look at the industry’s recent stock market performance and valuation picture.

Industry Outperforms the Sector and S&P 500

The Zacks Audio Video Production industry has outperformed the broader Zacks Consumer Discretionary sector and the S&P 500 composite in the past year.

The industry has jumped 50.8% over this period compared with the S&P 500’s growth of 18.8%. The broader sector has surged 20.5% in the same time frame.

One-Year Price Performance

 

Industry's Current Valuation

Price-to-earnings is commonly used for valuing audio-video production stocks. The industry has a forward 12-month P/E of 24.36X compared with the S&P 500’s 23.59X. It is above the sector’s forward 12-month P/E of 20.17X.

In the past five years, the industry has traded as high as 24.36X and as low as 15.8X, with a median of 18.41X, as the chart below shows.

Price-to-Earnings Forward Ratio (Past Five Years)

 

3 Audio Video Production Stocks to Keep an Eye on

Sonos: Headquartered in Santa Barbara, CA, Sonos operates as a consumer electronics company primarily involved in the manufacturing of speakers with immersive sound experiences.

Sonos’ performance is gaining from stronger-than-anticipated sales of portables and components. It is also benefiting from an expanded geographic footprint amid the complex macroeconomic backdrop. Frequent product innovation and the addition of new features to existing products bode well. In the fiscal third quarter, it introduced AI-powered voice enhancement for Arc Ultra and advanced adaptive noise cancellation for Sonos Ace. With the launch of Sonos Ace, its first over-the-ear Bluetooth headphone, the company has forayed into the personal listening category. Sales of Sonos Ace are cushioning the top line. 

It has moved the majority of U.S.-bound production out of China to Vietnam and Malaysia, limiting exposure to China tariffs to a few accessories and co-branded products. The company is actively evaluating pricing and promotional strategies, collaborating with contract manufacturers and retailers to limit downstream impact on consumers.

Although it temporarily paused buyback in the third-quarter fiscal 2025, it still prioritizes returns, with $150 million remaining authorized. For the fiscal fourth quarter, Sonos projects revenues of $260-$290 million, up 2-14% year over year. 

At present, SONO carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.   

The Zacks Consensus Estimate for its fiscal 2025 bottom line is pegged at 59 cents, unchanged in the past seven days. Shares have gained 23.7% in the past year. 

Price and Consensus: SONO

Price and Consensus: DLB

Price and Consensus: GPRO

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Dolby Laboratories (DLB): Free Stock Analysis Report
 
GoPro, Inc. (GPRO): Free Stock Analysis Report
 
Sonos, Inc. (SONO): Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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