Dolby Laboratories (DLB +11.97%) stock soared 11.7% through 10:45 a.m. ET Friday after reporting mixed financial results for its fiscal Q3 2026 last night.
Heading into the report, analysts forecast the audio technology company would earn $0.67 per share on quarterly sales of $312 million -- both down significantly from last quarter. Dolby missed the sales estimate, reporting only $305 million in revenue, but beat on earnings, reporting $0.69 per share.
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Dolby Q3 earnings
Year-over-year declines looked a little better, with sales declining only 3.5%. However, it's worth pointing out that Dolby's "$0.69" per-share profit was only a non-GAAP figure. Actual earnings calculated under generally accepted accounting principles (GAAP) were only $0.30 per share -- and down 37% year over year.
Despite this fall-off, Dolby CEO Kevin Yeaman insisted the company "continue[s] to execute against our full-year objectives, and we are building momentum across several of our key growth areas."
NYSE: DLB
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What's next for Dolby stock
In line with this prognosis, Dolby estimates that Q4 sales will, in fact, pick up dramatically, and the company is looking for at least 19% sequential growth -- sales between $362 million and $392 million. A strong 88% gross profit margin will help transform these stronger sales into GAAP profit of $0.78 to $0.93 per share.
For the full year, moreover, Dolby is guiding to at least $1.4 billion in revenue, and GAAP profits ranging from $2.62 to $2.77. Taken at the midpoint, that works out to about a 21.5 times current-year price-to-earnings ratio.
For a company growing both sales and earnings only in the low single-digits, though, I fear that's too high a price to pay. Today's spike in the share price is best viewed as an opportunity to exit Dolby stock.
