Any time a big-name company has its stock cut in half in just a few months, it��s worth sniffing around to see if there��s a bargain amid the rubble. In the case of Sony (NYSE:SNE), however, there��s no such value to be found.
The Sony story is ugly, and there appears to be little in the way of a silver lining even with the stock at $17.20 — compared with its February high near $37 and its post-bubble high near $60 in 2007. The gradual implosion of a former market leader stems from a lack of innovation to keep its brand relevant in an Apple-dominated world. It was only a few years ago that Sony was a dominant company within the consumer electronics space. Now, it is mainly a seller of commoditized hardware — not where you want to be in a soft global economy.
The strength of the yen — one of the challenges Sony cited in its recent earnings report — certainly hasn��t helped. The Japanese currency has surged in the safe-haven trade of the past six months, weighing heavily not just on Sony, but on all of the nation��s exporters. A bull case for Sony here is that the yen is tied to a weak economy with low interest rates, so it��s only a matter of time before the safe-haven trade unwinds, the yen softens and exporters begin to recover.
This might prove to be the case, but Sony��s problems run deeper than just unfavorable currency translation. This year will mark the fourth consecutive annual loss for the company, which is seeing its businesses eroded on the high end by Apple (NASDAQ:AAPL) and on the low end by Samsung (PINK:SSNLF) and others. Sony is losing market share in phones and is unlikely to see success in tablets, its music division is under pressure, and even its TVs — which have long commanded a premium price — have turned into a money-losing business. It��s debatable how long consumers will be willing to pay this premium at a tim! e in whi ch both Samsung and LG are gaining brand cachet and Apple TV is looming on the horizon. Finally, sales of Sony��s handheld devices continue to be hurt by the rising competition from smartphones.
In short, there appears to be nothing to get consumers — or investors — excited about Sony again.
Sony is in a difficult position here. It can increase spending to help right the ship, but this will lead to even more pressure on earnings. Alternatively, it could go into survival mode and milk its current businesses indefinitely. Neither course of action is the recipe for a meaningful recovery in its stock price.
For all of this, SNE shares aren��t particularly cheap. The stock trades at about 15 times forward estimates, but it��s difficult to have faith in these estimates when the company has whiffed on earnings three quarters in a row. Also, estimates have been plunging all year, and it seems unlikely that trend will reverse anytime soon. With estimates headed south, two things can happen: Either the forward P/E expands or the stock price remains under pressure. The latter scenario appears to be the most probable.
Click to Enlarge Even for those seeking a quick trade, Sony offers little to entice would-be buyers. The stock has managed only two modest rallies this year; otherwise, its chart is making the 45-degree downward slope that signals the need for a multi-month base to be put in before there is any significant upside.
The bottom line: For now, Sony looks more like a value trap than a turnaround story. With a punk economy and no catalyst to spark a longer-term recovery in its shares, look for opportunities elsewhere rather than being tempted by Sony��s falling stock price.
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