3 Reasons to Sell SONO and 1 Stock to Buy Instead

Sonos’s stock price has taken a beating over the past six months, shedding 28.1% of its value and falling to $9.33 per share. This may have investors wondering how to approach the situation.

Is there a buying opportunity in Sonos, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Do We Think Sonos Will Underperform?

Even though the stock has become cheaper, we're swiping left on Sonos for now. 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 performance is an indicator of 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 1.9% compounded annual growth rate. This fell short of our benchmarks.

2. Operating Losses Sound the Alarms

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Sonos’s operating margin has shrunk over the last 12 months and averaged negative 3.5% 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. EPS Trending Down

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Sadly for Sonos, its EPS declined by 5.8% annually over the last five years while its revenue grew by 1.9%. This tells us the company became less profitable on a per-share basis as it expanded.

Final Judgment

We see the value of companies helping consumers, but in the case of Sonos, we’re out. Following the recent decline, the stock trades at 15.6× forward price-to-earnings (or $9.33 per share). At this valuation, there’s a lot of good news priced in - we think there are better stocks to buy right now. Let us point you toward our favorite semiconductor picks and shovels play.

Stocks We Would Buy Instead of Sonos

The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.

While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.