Rallying From March, Have Dolby Labs Stock Returned?

Stock Dolby Laboratories (NYSE: DLB) is up more than 30% since the beginning of this year, and at the current price of around $ 92 per share, we believe Dolby Laboratories stock has more than 15% potential.


Why is that? Our credit comes from the fact that DLB stock has doubled from a low in March this year, while the S&P has moved just over 60% by comparison. Further, after posting weak Q4 2020 numbers, and with demand struggling to rise to pre-Covid levels, we believe Dolby stock could go lower. Our dashboard What factors changed the 49% change in Dolby lab stock between 2018 and now? giving the main numbers behind our thinking, which we explain further below.

Dolby Laboratories specializes in audio noise reduction and audio encoding / compression, allowing its technology to consumer electronics manufacturers. Dolby’s price increase from 2018 was due to a 13% increase in revenue per share, driven by a 10% increase in revenue coupled with a 3% fall in the outstanding shares account .

Further, the DLB’s P / S (price-to-sell) ratio moved from 6.1x in 2018 to 5.6x in 2019, but has jumped to 8x since then, riding the rally in stock technology. We believe that with Dolby’s weak Q4 ’20 performance, there is a potential downside risk for the P / S multiplayer.

So what is the most likely trend and timing of this downturn?

The global spread of coronavirus and the resulting lockouts has significantly reduced the demand for medium sound systems. These systems are mainly used in major events and theaters, and both have been severely affected by the pandemic. This has led to a decline in demand for Dolby products, which is evident from their Q4 2020 results, where revenue came in at $ 1.16 billion versus $ 1.24 billion in 2019. In particular, revenue fell. Product and service revenue rose nearly 40% from $ 134 million to $ 83 million over this period. Moreover, as operating costs did not fall at the same level, operating margins fell to 18.8% in FY’20 vs 20.7% in FY ’19. Despite a lower effective tax rate, EPS came in lower at $ 2.30 vs. $ 2.51 in 2019.

Going forward, we expect revenue to remain weak in the short to medium term, and if the company is unable to control costs, we expect the stock to see the decline P / S from the current level of 8x to around 7x, which combined with a decrease in income and margins the stock price could fall as low as $ 75, a decrease of more than 15% from the current price close to $ 92.


What if you are looking for a fairer package instead? Here is a high quality package to hit the market, with more than 100% returns from 2016, compared to 55% for the S&P 500. Considered by companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has been be better than the general market year after year, consistently.

See everything Trefis price estimate and Download Trefis Data here

What’s behind Trefis? See how it empowers new collaborations and what they are CFOs and Finance Teams | Product, R&D, and Marketing Teams