Most everyone who's anyone on Wall Street took a hit yesterday. Market pundits seem to be ascribing the selloff primarily to worries over an impending General Motors
... What's the deal with Dolby?
There's also a Wall Street Journal report out (tip o' the hat to the Motley Fool Stock Advisor board for pointing this out) suggesting that a lesser-known stock shop called "Pacific Crest" downgraded Dolby to "sector perform" yesterday. But with all due respect to the firm in question, a downgrade from an analyst at a smaller specialty investment bank hardly seems sufficient reason to justify Dolby's 8% sell-off.
To the contrary, Fools, I think what we are looking at here is a bona fide buying opportunity in Dolby stock. Trading as it does for just 17 times trailing earnings (and 19 times forward earnings), and with long-term growth posited at 14%, Dolby's sporting a 1.2 PEG ratio. And while that may look a little pricey, consider that the firm also boasts:
- Industry-leading profit margins -- operating margin comes to 47%, or nearly twice what Dolby's next-biggest close competitor (DTS) can claim.
- Cash profits that exceed reported net income by about 12% -- resulting in a price-to-free cash flow ratio of just 15.
- And speaking of cash ... Dolby has more than $566 million in cash and equivalents, another $244 million and change in long-term investments, and negligible long-term debt.
Add it all up, and while I don't know that I can call Dolby a screaming buy just yet, I do detect a whispered "Buy me soon."