Author: Slavica Grabovac
Publication date: 08.01.2024
Sony Corporation is a multinational conglomerate engaged in various sectors worldwide. For example, it has to do with electronics, gaming, entertainment, and financial services. So, it is a Japanese company, established in 1946, headquartered in Tokyo.
Over the years, Sony has made significant contributions to society through technology innovation and manufacturing excellence. With such a long and successful history in diverse lines, Sony's resilience through global economic uncertainty is evident. Let's find out if Sony is a good investment.
Fundamental Analysis of Sony
Revenue Model
Sony's electronics division is responsible for producing a wide range of products, including televisions, cameras and mobile devices. Besides that, Sony is also one of the world's leading producers of gaming consoles. This includes the PlayStation series, which has sold over 100 million units worldwide. What’s more, they are involved in the entertainment industry and financial services industry, with a focus on insurance and banking.
When we look at Sony's revenue model, we can see that the highest percent revenue is from Game & Network with a 27% revenue share. Second comes Sony Electronics with 23% and then comes the Financial Services segment with 15.5%. Last, Sony Pictures follows with 12.5% and Sony Music and Imaging and Sensing Solutions with 11% share.
Financing debt
As seen on the Y-charts, current D/E ratio is 0.63. The ratio is less than 1, approaching 0.5, which is a positive sign indicating that the company's long-term debt is relatively low compared to its equity. Whether a debt-to-equity (D/E) ratio is considered good depends on the type of business and its industry. As a general rule, a D/E ratio below 1 is seen as safe.
A very low debt-to-equity (D/E) ratio could be a downside. This indicates that the company might be missing out on the benefits of using debt for financing and the associated tax advantages. The short-term debt health of the company is not great with a current ratio of 0.61. Therefore, this needs to be above 1 in order for the current assets to be higher than all current liabilities.
Efficiency metrics
If we take a look at the efficiency metrics of Sony, we can see that the Return on Equity metric is 20% which is very good (we need to have above 12% on this metric). Also, we need above 12% on the ROIC (return on invested capital) which in this case is 4.38% which is not ideal. The ROA (return on assets) is 4.33%. For this to be at 10% or more is quite desirable and valuable.
Technical Analysis
The Price to Book ratio for Sony is 2.1 which means the price of the company is only 2 times higher than the equity it has, below 3 is considered a very stable level. And in the case of a bankruptcy, investors would get back 50% of their investment.
Now we take a look at P/E (price-to-earnings) history for the past five years. In late 2021, Sony experienced a period of high optimism, briefly surpassing a P/E ratio of 20. The current level is 16. Conversely, during a negative sentiment in 2019, the P/E dropped to 8. In addition, it would be good to buy Sony at a P/E of 10 to 14, which is in line with its historic levels.
When we look at the monthly summary of its technical indicators, we can see that it is indicating a “strong buy” now. On the other hand, when we look at it on hourly charts, indicators are on “sell”.
Is Sony a good investment idea?
In conclusion, Sony is a company with a proven track record of success. This is because it offers a diverse range of product lines and the potential for long-term growth. In order to consider Sony a good investment, we would like for the price to drop a little further. Company’s reputation and its products are very good, but the fundamentals need to be a little bit better. However, it is crucial for investors to carefully assess their risk tolerance. This means that they should go through due diligence before making any investment decisions.