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Why Sonos Stock Stumbled Today

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

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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.

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