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5-Star Stocks Poised to Pop: Dolby Labs

Based on the aggregated intelligence of 170,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, audio technology specialist Dolby Laboratories (NYSE: DLB  ) has earned a coveted five-star ranking.

With that in mind, let's take a closer look at Dolby's business and see what CAPS investors are saying about the stock right now.

Dolby facts

Headquarters (Founded)

San Francisco (1965)

Market Cap

$5.67 billion

Industry

Electronic components

Trailing-12-Month Revenue

$944.2 million

Management

CEO Kevin Yeaman (since 2009)

CFO Murray Demo (since 2009)

Return on Equity (Average, Past 3 Years)

20.3%

Cash/Debt

$704.2 million / $0

Competitors

DTS (Nasdaq: DTSI  )

Sony (NYSE: SNE  )

SRS Labs (Nasdaq: SRSL  )

Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

On CAPS, 98% of the 3,732 members who have rated Dolby believe the stock will outperform the S&P 500 going forward. These bulls include gweech and fightinag04.

Just last month, gweech touched on Dolby's ubiquitous nature:

These guys are everywhere and in everything. As the PC market dies, they will continue to romp the tablet, mobile device, and TV arena. They have a great cash positions, incredible margins, and a totally geeked out culture ... ruthless about making quality sound products.

In fact, Dolby boasts a rather robust three-year average operating margin of 47.2%. That's higher than that of competitors DTS (25.6%), Sony (1.7%), and SRS Labs (4.9%).

Late last year, fightinag04 elaborated on the bull case:

Dolby is the long established king when it comes to digital audio integration into various types of entertainment, and has managed to stay ahead of all competition, which will only increase in demand as customer want better and better quality to go with their video games, movies, etc. Their maintain high margins and great growth opportunities worldwide. While not cheap by traditional value metrics, they present a long term growth opportunity whose story should only get better in time.

What do you think about Dolby, or any other stock for that matter? If you want to retire rich, you need to put together the best portfolio you can. Owning exceptional stocks is a surefire way to secure your financial future, and on Motley Fool CAPS, thousands of investors are working every day to find them. CAPS is 100% free, so get started!

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Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Dolby is a Motley Fool Stock Advisor pick. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.


Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 01, 2011, at 7:07 PM, 64mediaguy wrote:

    In the long run, for investors, its all about the stock and whether it rises or falls, and by how much, appropriate to many factors, especially in a marketplace where the subject company supposedly dominates. For several weeks, Dolby has been in a long, slow, but almost continuous downward spiral with no apparent cause or analysis by the "experts" who have continued to push it. What gives?

  • Report this Comment On March 01, 2011, at 7:53 PM, linzeljp wrote:

    The current long, slow, continuous spiral started with a downgrade by Goldman Sachs based on the theory that tablet sales (which Dolby gets less profit per unit on) will cannibalize the PC market, which is a significant, but not majority, source of revenue for Dolby. This was followed by a slight miss on earnings (with a lot of GOOD news buried in the report) and a slight downward revision of forward earnings guidance based on the same theory presented by GS. This is the apparent cause of the downward spiral. There's been plenty of analysis given by those who continue to push, maybe look a little harder. Generally what the analysis I've seen boils down to is Dolby is still making money hand over fist on a superb business model and the tablet cannibalization probably won't be as bad as GS is making it out to be.

    Thus, long Dolby.

  • Report this Comment On March 01, 2011, at 11:17 PM, mshipe101 wrote:

    linzelip,

    I have owned DLB for years but have not invested in options for this stock. When you note you are "long Dolby" I assume you are referring to LEAPS. Yet I can only access options up to September of this year, what gives?

  • Report this Comment On March 05, 2011, at 8:57 AM, ayaghsizian wrote:

    mshipe101,

    I believe when someone says they are long dolby they just mean that they believe dolby will go up. Whether they own stock, call options (leaps), or even play money on a watchlist is their business. Usually they're implying that they own stock, as I would guess is the case with linzelip.

    Not every stock has the full range of options available.

    I hope this helps.

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