Audio equipment specialist Sonos(NASDAQ: SONO) wasn't producing sweet songs on Tuesday -- at least as far as its stock was concerned. The company's shares were dinged by almost 5% on the back of an analyst recommendation downgrade. That decline was in contrast to the performance of the S&P 500 index, which closed the day marginally (0.3%) higher.
Sonos gets a recommendation downgrade
The person effecting the downgrade was John Babcock of Bank of America(NYSE: BAC) Securities. Well before market open, Babcock shifted his recommendation down one peg to neutral from the preceding buy. He accompanied this with a price target reduction, pushing his fair value estimation for Sonos stock down to $12 per share; formerly, this stood at $20.
In a new research note, the prognosticator spelled out the reasons for his move. He expressed concern about the "continued softness" in the consumer electronics market, sluggish turnover in the housing market, and the lengthy replacement cycle of the home audio products Sonos specializes in providing. A more company-specific factor he cited was Sonos's "elevated" inventory and promotional activities.
Per Babcock's research, parsing his bank's credit and debit card data, spending on consumer electronics and hobby items fell a queasy 10% year over year in the third calendar quarter of 2023. Follow-up checks with retailers indicated relatively slow take-up of pricey electronic goods, the analyst added.
Possibly in oversold territory now
Investors took that research to heart; hence the bearish reaction in its wake. That said, Sonos has proven to be an imaginative developer of an impressive range of appealing products and an effective seller of its wares. With an already-depressed share price, this latest blow might provide a fine opportunity for investors 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 position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America and Sonos. The Motley Fool has a disclosure policy.
