StockStory Flags Sonos Sales, Earnings and Cash-Flow Weaknesses

StockStory said it was avoiding Sonos, despite shares gaining 33.4% over the previous six months and reaching $18.13. The publisher said the rally followed solid quarterly results and outpaced the S&P 500 by 16.6%.

The publisher cited long-term declines in sales and earnings. Over five years, Sonos's sales fell at an annual rate of 2.6%, while earnings per share declined 11.5% annually.

StockStory said the larger earnings drop suggested fixed costs made it difficult for the company to adjust as demand weakened. It also described the sales trend as a sign of poor business quality.

The publisher pointed to Sonos's average free cash flow margin of 6.3% over the past two years. StockStory said this was below what it expected for a consumer discretionary business and limited opportunities to return capital to shareholders.

At $18.13, Sonos traded at 19.5 times forward earnings, the article said. StockStory argued that the valuation priced in substantial good news and said it saw stronger fundamentals elsewhere.

The publisher acknowledged that solid quarterly results helped the recent share performance, but said it was still passing on Sonos.