Is Sony (SNE) a buy?

By | October 23, 2006

I read an article in BusinessWeek on Sony. Sony is banking most of its money on its Blu-Ray technology. Their main competitor is Toshiba’s HD-DVD. Blu-Ray can hold 25GB on a single layer and 50GB on a dual-layer disc. Music and film industries are pushing for Blu-Ray technology, because Blu-Ray DVDs have larger storage capacity and will enforce copyright laws to prevent privacy. Blu-Ray DVD technology players will only play original Blu-Ray DVDs. With all the backings by major companies, it looks like Sony will win the war on high-def DVD standard format. Also, the Sony PS3 will come with a Blu-Ray player but the XBox has not incorporate such technology yet. It looks like they will also recapture a large percentage of the gaming industry. Now, the question is, “Is Sony a buy?”

The stock closed at 40.35 today. Looking at the fundmentals, it’s good in some areas and not good in others. The forward P/E of 19.78 looks attractive, while the PEG ratio of 1.52 suggests that its earnings is not growing fast enough over it’s P/E. The margins are very low. The debt level is very unappetizing to me. However, the next year growth rate is at 104%. That certainly looks like it would change things if it meets 2008’s expected earnings. Also, if Sony wins the high-def DVD war, it will be bring a lot of attention to the company and investors’ interest.

Trailing P/E (ttm, intraday): 31.52
Forward P/E (fye 31-Mar-08) 1: 19.78
PEG Ratio (5 yr expected): 1.52
Profit Margin (ttm): 2.13%
Operating Margin (ttm): 4.66%
Total Debt (mrq): 9.55B
Next Year Growth: 104.0%

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