Specialist in audio equipment Sonos (NASDAQ: SONO) didn’t produce any sweet songs on Tuesday – at least as far as stocks are concerned. The company’s shares fell nearly 5% following a downgrade by analysts. That decline contrasted with the performance of the S&P500 index, which closed the day marginally (0.3%) higher.
Sonos gets a recommendation downgrade
The person who effected the downgrade was John Babcock from bank of America (NYSE: BAC) Effects. Well before the market opened, Babcock shifted his recommendation one step lower to neutral compared to the previous purchase. He accompanied this with a price target cut, dropping his fair value estimate for Sonos stock to $12 per share; previously this was $20.
In a new research note, the forecaster explained the reasons for his move. He expressed concern about “continued weakness” in the consumer electronics market, sluggish housing sales and the lengthy replacement cycle of the home audio products in which Sonos specializes. A more company-specific factor he mentioned was Sonos’ “increased” inventory and promotional activities.
According to Babcock’s research, which analyzed his bank’s credit and debit card data, spending on consumer electronics and hobby items fell a sickening 10% year over year in the third calendar quarter of 2023. Follow-up checks with retailers showed that uptake of expensive high-priced items was relatively slow. electronic goods, the analyst added.
Possibly now in oversold territory
Investors took that research to heart; hence the bearish reaction in its wake. That said, Sonos has proven to be a resourceful developer of an impressive range of attractive products and an effective marketer of its products. With the share price already low, this latest blow could provide investors with a great opportunity to own a decent company at a relative discount.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Eric Volkman has no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Bank of America and Sonos. The Motley Fool has a disclosure policy.
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