What happened
Shares of Sonos (SONO +1.63%) stock spiked on Monday, after a prominent short-seller issued a report on the home audio company. But rather than discuss shorting the stock, the report stated that it's "a better time than ever" for Apple (AAPL +2.65%) to acquire the company outright.
Shares of Apple barely budged on the news. But as of 2 p.m. EDT, Sonos stock was trading 18% higher. And traders are likely eyeing even more upside based on the report.
Image source: Getty Images.
So what
The report's author is Citron Research. It's important to note that Citron isn't necessarily predicting Apple will buy out Sonos. Rather, it's just saying that if Apple was ever going to acquire Sonos, then it makes a lot of sense to do it right now. Apple is understandably stealing the headlines, but the report further detailed many of Sonos' perceived strengths.
The report mentions Sonos' strong patent portfolio and great lifetime customer value for reasons to be bullish on the company's prospects long term. However, in the near term, Citron believes Sonos will report quarterly results exceeding Wall Street's expectations. Citron noted that four of Sonos' seven products are currently sold out, and credit card data from an unnamed source show a surge in Sonos consumer spending.
Citron also believes that Sonos is undervalued compared with other technology device stocks and that it could increase three to four times in value from that alone. Furthermore, in a buyout scenario, Citron believes Sonos stock could surge six times in value. That would be a mind-blowing move for a stock that's underperformed both the market and Apple stock since it went public in 2018.
Now what
Citron's report presents a compelling case and is worth reading. After all, understanding a diversity of opinions is important in making sure one's own opinion is well-rounded and considers all the evidence available.
However, when it comes to Sonos being acquired, it's just speculation. Citron argues why an acquisition makes sense, but Apple and Sonos haven't said anything to substantiate the rumors. This isn't even a case of an anonymous source with insider information; it's just one person's logical opinion.
Therefore, I believe it's best for potential investors to approach Sonos stock under the assumption it will remain a stand-alone company.
