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4 Audio Video Stocks That are Braving Industry Challenges

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The pandemic is still affecting companies in the Zacks Audio Video Production industry. Declining consumer demand and supply chain disruptions pose major concerns. Also, fierce competition from importers of comparatively low-priced devices weighs on these industry players. Online accessibility of recording equipment and the availability of distribution channels on the Internet remain headwinds.

Nonetheless, the companies are concentrating on the premium segment of the branded products market for business growth. Panasonic Corporation (PCRFY - Free Report) , Sharp Corporation (SHCAY - Free Report) , Sonos, Inc. (SONO - Free Report) and GoPro, Inc. (GPRO - Free Report) are likely to benefit from investments in cutting-edge technology solutions that create better communications experience.

Industry Description

This industry includes developers, manufacturers and sellers of audio, visual, and infotainment systems like Harman International Industries, Incorporated (HAR)

What's Shaping the Future of Audio Video Production Industry

Aggressive Competition: In the United States, smart-connected televisions, microphones and speaker enclosures are the most popular electronic devices among customers. But the U.S. manufacturers of audio and video systems continue to face intense competition from importers of comparatively low-priced devices, particularly from China, Vietnam and Mexico. The firms face stiff competition across all end markets, which often leads to intense price wars and margin contraction. Also, a decline in picture and music sales has taken a heavy toll on the industry. Nevertheless, the companies are likely to benefit from investments in cutting-edge technology solutions that create a seamless communications experience.

Changing Consumer Preferences: Rapid changes due to the technological obsolescence of products lead to a plethora of challenges as the ecosystem continues to transform in the digital age. The fast-evolving industry has called for innovation, which necessitates the participants to continuously come up with ground-breaking technology to stay ahead of the curve. Keeping up with changing consumer preferences, licensee demand, shifting standards makes the industry vulnerable to operating risks. While the companies are coming up with compelling offerings to broaden their customer base, they face risks associated with new product development.

Pandemic Continues to Hurt Businesses: The pandemic continues to deal a blow to the industry, with companies seeing a substantial decline in cinema product sales. Theater closures and lower sales for television productions are impairing the overall performance. While the companies keep investing for market share gains and supply chain resilience, a shortage of critical hardware components due to supply chain disruptions is expected to hurt their revenues in the near term. Unit volume shipments across end markets and devices are expected to decline. Fluctuations in commodity pricing for different components pose another concern.

Zacks Industry Rank Indicates Gloomy Prospects

The Zacks Audio Video Production industry is housed within the broader Zacks Consumer Discretionary sector. It currently has a Zacks Industry Rank #192, which places it at the bottom 24% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates weak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the bottom 50% of the Zacks-ranked industries is an outcome of a negative earnings outlook for the constituent companies. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. Since July 2021, the industry’s earnings estimates for the current year and the next have decreased 2.8% and 5%, respectively.

Before we present a few audio-video production stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and valuation picture.

Industry Outperforms Sector, Lags S&P 500

The Zacks Audio Video Production industry has outperformed the broader Zacks Consumer Discretionary sector but lagged the S&P 500 composite in the past year.

The industry has lost 9.1% over this period against the S&P 500’s rise of 15.3%. The broader sector has declined 22.2%.

One-Year Price Performance

Industry's Current Valuation

Price-to-Sales is commonly used for valuing audio video production stocks. The industry currently has a trailing 12-month P/S of 1.2X compared with the S&P 500’s 4.85X. It is also below the sector’s trailing 12-month P/S of 2.48X.

Over the past five years, the industry has traded as high as 1.43X and as low as 0.56X with a median of 0.8X, as the chart below shows.

Price-to-Sales TTM Ratio (Past Five Years)

4 Audio Video Production Stocks to Watch

Panasonic: Headquartered in Kadoma, Japan, Panasonic sells and services various electronic products globally. It operates through five segments — Appliances, Life Solutions, Connected Solutions, Automotive and Industrial Solutions. The company continues to control fixed costs and make efforts to capture new business opportunities. It aims to create value by combining Blue Yonder’s software platform, which offers state-of-the-art artificial intelligence and machine learning capabilities, with Panasonic’s manufacturing expertise and its edge devices, IoT applications and sensing technologies. The Zacks Consensus Estimate for its current-year earnings has been stable over the past 60 days. The stock has, however, lost 23.9% in the past year. It currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price and Consensus: PCRFY

Sharp: Headquartered in Sakai, Japan, Sharp produces and sells telecommunication equipment, electric and electronic application equipment, and electronic components worldwide. It operates through three segments — Smart Life, 8K Ecosystem and ICT. It aims to collaborate with various companies to develop innovative services and solutions in eight priority areas — Smart Home, Smart Office, Healthcare, Entertainment, Education, Industry, Security, and Mobility. It benefits from increased demand for in-home consumption, a rising preference for cleanliness, expanded telework, advancements in ICT-based education, the acceleration of online medical treatment and telemedicine and digital transformation in retail and industrial applications. The consensus estimate for its current-year earnings has been revised 4.2% upward over the past 60 days. The stock has lost 48.9% in the past year. It currently carries a Zacks Rank #2 (Buy).

Price and Consensus: SHCAY

Sonos: Headquartered in Santa Barbara, CA, Sonos is one of the world’s leading sound experience brands. The company is focused on its three strategic initiatives — expanding its brand, boosting its offerings and driving operational excellence. It benefits from robust demand for its products in the growing global audio market. It is well-positioned to deliver significant free cash flow and increased shareholder value over the long term. The consensus estimate for its current-year earnings has been stable over the past 60 days. The stock has lost 21% in the past year. It carries a Zacks Rank #3.

Price and Consensus: SONO

GoPro: Headquartered in San Mateo, CA, GoPro sells cameras, drones and wearable accessories in the United States and globally. The company is committed to producing the world’s most versatile cameras and imaging software solutions. It benefits from a solid product line and a direct-to-consumer strategy, with an accretive customer base. It has been expanding its footprint in emerging markets and is focused on scaling up its customer relationship management efforts. Strong demand across all regions, with increasing subscription revenues, bodes well. The consensus estimate for its current-year earnings has been revised 1.2% upward over the past 60 days. The stock has inched up 0.7% in the past year. It carries a Zacks Rank #2.

Price and Consensus: GPRO

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