Why Sonos Stock Soared 49.7% in 2020

What happened

Shares of Sonos (NASDAQ: SONO) climbed 49.7% across 2020's trading, according to data from YCharts. The home audio company posted strong gains thanks to a combination of resilient business performance and momentum for the broader market.

^SPX Chart

^SPX data by YCharts.

Despite headwinds from the coronavirus pandemic, Sonos showed that its audio solutions were still seeing high demand. The fourth-quarter results the company delivered in November were particularly encouraging and played a big role in the stock closing out the year with impressive gains.

A Sonos speaker.

Image source: Sonos.

So what

Closures and reduced consumer traffic at many retail locations created tough operating conditions for Sonos, but strong performance in the fourth quarter showed that the company is still winning with consumers. E-commerce engagement for the brand surged, and direct-to-consumer sales climbed 67% year over year in the fourth quarter.

Online retail performance helped the company crush the market's expectations, with adjusted earnings per share of $0.33 on revenue of $339.84 million easily beating the average Wall Street target for per-share earnings of $0.18 on sales of $298.64 million. Overall revenue was up roughly 7% year over year on an adjusted basis, a performance that looked pretty good in the context of the quarter's retail climate.

Now what

Sonos expects sales for the current fiscal year to come in between $1.44 billion and $1.5 billion, representing annual growth of roughly 13% at the midpoint of the target. The audio specialist now has a market capitalization of roughly $2.6 billion and trades at 21 times this year's expected earnings.

Sonos is still a relatively small player in the consumer electronics space, and more resource-rich competitors being able to offer superior software integration and undercut the company on pricing is a risk factor that investors must keep in mind. On the other hand, Sonos has built a track record of delivering high-quality products, and impressive performance in light of 2020's numerous operating challenges suggests that the brand is continuing to gain ground.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Sonos Inc. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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