Is Sony Corp (ADR) (NYSE: SNE) Currently Overvalued?

Sony Corp (ADR) (NYSE: SNE) currently trades slightly above $47 per share with a price to sales ratio of 0.83, which is quite high compared to overall Electronic Equipment industry average of 0.53. The company’s P/E ratio is pegged at 25.7, which is considered quite expensive by some analysts given that JPMorgan Chase & Co. (NYSE: JPM) recently downgraded the stock to neutral citing concerns about the demand for image sensors.

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Sony is currently valued at a premium in comparison to its peers.

The company was recently downgraded by JPMorgan analysts.

The company is likely to outperform in the latest quarter.

Here’s the trading report on SNE.

The company posted stellar performance in the second quarter where its operating profits grew by 346% outperforming the negative sentiment that had clouded the stock. The same scenario seems to be playing out in regards to its third quarter results where most analysts are rating the stock as overvalued since they expect it to disappoint in the latest quarter.

The different business units within Sony such as its gaming unit, its mobile and music units are performing well, which is the main reason contributing to the thesis that Sony is competitively valued. The company’s Camera division is facing stiff competition from other players such as Canon Inc (ADR) (NYSE: CAJ) and Nikon, but still has a substantial customer base.  

The company estimates positive growth in the revenues generated from its core product offerings, which include the Play Station, Movies & Music, Image Sensors, TV/Audio/Phones, Insurance and Cameras. The company’s revenues and earnings per share beat analyst expectations in the second quarter, which increases the likelihood of a similar outcome in the third quarter.

Sony’s Play Station remains the company’s flagship product, which leads the market as one of the most popular gaming devices worldwide. The company also designs most of the games played on the Play Station, while its competitors such as Nintendo and Microsoft Corporation’s (NASDAQ: MSFT) Xbox are trailing it by a wide margin.  

The company is also the biggest supplier of image sensors for premium phones such as Apple Inc.’s (NASDAQ: AAPL) iPhone X and Samsung’s premium phones. The recent downgrade by JPMorgan was based on the assumption that iPhone X sales would disappoint, but this is unlikely to affect Sony given that it also supplies the same sensors to Samsung.

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