Please ensure Javascript is enabled for purposes of website accessibility

Why Sonos Stock Stumbled Today

By Jon Quast – Jun 18, 2020 at 12:04PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

There's reason to believe the company could dilute shareholder value.

What happened

Shares of home-audio company Sonos (SONO 1.39%) were falling on Thursday, after a report surfaced claiming the company is preparing to issue new shares. As of 10:50 a.m. EDT, the stock was down 9%. 

Sonos stock had been slowly recovering from its steep losses earlier in the year. However, including today's drop, it's sharply underperforming the market average.

SONO Chart

SONO data by YCharts

So what

It's important to note the report didn't come from Sonos. Rather, it came from sources at Bloomberg. According to these sources, Sonos intends to offer 13.9 million shares between $13.25 and $13.50 per share. For perspective, that's less than what the stock was worth yesterday. The move suggests Sonos' management sees its stock as fairly valued at best, or overvalued at worst.

Sonos had 109 million shares outstanding as of the second quarter of 2020. Adding 14 million shares increases the total share count by almost 13%, a hefty jump.

A man lays his head down in frustration, with a down stock chart in the background.

Image source: Getty Images.

Now what

To be fair, this news must be taken with a grain of salt. It's really just a rumor until Sonos files with the SEC. However, this rumor is detailed, lending credibility to it. Where there's smoke there's often fire.

In the past month, there has been a fair bit of insider selling at Sonos. Company executives are people too, and have personal financial motivations to buy and sell stock, so it's important not to overreact to these moves. In this case, executives were recently granted stock-based compensation. Many officers immediately sold a portion, including the CEO and the CFO. Both still hold over 80,000 shares each, but they also sold some at $9.08 per share.

Sonos also has some incentive to raise cash. In Q2, it had an $83.5 million loss from operations. Considering its Q2 ended on March 28, it's likely the upcoming third quarter will be worse. The company is well capitalized with $283 million on the balance sheet, but extra cash from a stock offering would sure come in handy.

Today's news has yet to be verified. But there are reasons to believe it's true.

Jon Quast has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Sonos Inc. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Sonos Inc Stock Quote
Sonos Inc
$14.58 (1.39%) $0.20

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/05/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.