Apple, Inc. (AAPL) has been the biggest name in the consumer electronics industry for some time. While the Cupertino, Calif.-based company is a market leader and enjoys substantial brand loyalty, the recent crackdown on its anti-trust practices and an increasing focus on developing autonomous vehicles will likely put pressure on its consumer electronics business. Furthermore, supply chain disruptions and a semiconductor shortage are expected to shrink AAPL’s profit margins as its cost of goods sold (COGS) rises substantially. Consequently, analysts expect AAPL’s EPS to decline 5.7% in its fiscal first quarter (ending March 2022).

Given its bleak short-term earnings growth prospects, shares of AAPL look overvalued at their current price level. They are trading at a 2.49x forward PEG, which is 53.2% higher than the 1.63x industry average.

Therefore, we think it could be better to invest in fundamentally sound consumer electronics stocks Sonos, Inc. (SONO), VIZIO Holdings Corp. (VZIO), and Turtle Beach Corporation (HEAR) instead.

Sonos, Inc. (SONO)

SONO, in Santa Barbara, Calif., develops wireless multi-room home audio speakers and portable speakers. The company sells its products through third-party retailers and its website in the Americas, Europe, Asia Pacific, Africa, and the Middle East.

SONO’s revenues increased 5.8% year-over-year to $359.54 million in its fiscal fourth quarter, ended October 2, 2021. Its gross profit came in at $166.93 million, up 3.3% from the prior-year quarter. Its cash and cash equivalents balance improved 57.2% from the same period last year to $640.10 million (As of October 2, 2021). And its cash flow from operating activities rose 56.3% from its year-ago value to $253.23 million.

On November 17, SONO’s board of directors approved a stock repurchase program worth $150 million. This move should decrease the total outstanding shares of the company, thereby improving its EPS and ROE. Also, SONO has repurchased $100 million of shares over the past two years, beginning in September 2019.

Analysts expect SONO’s revenues to rise 13.4% year-over-year to $1.95 billion in its fiscal year 2022. The company’s EPS is expected to improve 12.4% from the same period last year to $1.27. SONO has an impressive earnings surprise history; it surpassed the Street’s EPS estimates in three of the trailing four quarters.

The stock has gained 37.9% year-to-date. All three Wall Street analysts that rated SONO have rated it a Buy. Analysts expect the stock to hit $50.33 in the near term, indicating a 56.1% potential upside. The price targets range from a low of $48.00 to a high of $53.00.

VIZIO Holdings Corp. (VZIO)

VZIO, in Irvine, Calif., manufactures an assortment of consumer electronics products and solutions, such as smart televisions, speakers and soundbars, and a Smart TV operating system SmartCast. It sells its products domestically through its website and e-commerce platforms, and third-party retail outlets. According to the NPD Group, Inc. U.S. Retail Tracking Service, VZIO has been the best-selling soundbar brand and the second-best TV brand in the country from January 2021 to September 2021.

On November 16, VZIO was named a CES 2022 Innovation Awards Honoree for its SmartCast operating system. Regarding this, Senior Vice President of Product Engineering David Rudnick said, “At VIZIO, we’re driving the future of television, and our award-winning SmartCast offers a wide range of content, search and discovery features, interoperability, and smart home connectivity to millions of U.S. consumers right out of the box.”

VZIO partnered with Square Enix last week to promote Marvel’s Guardians of the Galaxy video game. Given the commercial success of the movie franchise, the video game version is expected to perform well, thereby boosting VZIO’s lineup of 4k gaming TVs and soundbars.

VZIO’s Platform+ revenues increased 134% year-over-year to $85.90 million in its fiscal third quarter, ended September 30, 2021. This can be attributed to a 91% rise in SmartCast ARPU and a 35% rise in the SmartCast Active accounts. Its gross profit from the Platform+ segment rose 88% from the same period last year to $30.60 million.

A $541.67 million consensus revenue estimate for its fiscal first quarter (ending March 2022) indicates a 7.1% improvement year-over-year. In addition, the Street expects VZIO’s EPS to rise 138.2% next year.

Each of the five Wall Street analysts that rated the stock has rated it Buy. The $28.20 median price target indicates a 39.3% potential upside. The price targets range from a low of $27.00 to a high of $30.00.

Turtle Beach Corporation (HEAR)

HEAR is a leading audio technology company that develops gaming headset solutions, keyboards, mice, and related accessories. It sells its products under three brands-- Turtle Beach, ROCCAT, and Neat Microphones. HEAR is headquartered in San Diego, Calif.

For the fiscal third quarter. ended September 30, 2021, HEAR’s net revenues grew 141% year-over-year to $85.30 million. The cash balance stood at $28.10 million as of September 30, 2021, reflecting a 2.9% increase from the year-ago period.

On November 23, HEAR announced several newly launched products designed for artists, creators, and gamers ahead of the holiday season. Its 2021 lineup is the richest and most diverse in the company’s history and is expected to rake in substantial revenues amid the heightened seasonal demand. Also, this month, the company launched its award-winning VelocityOne flight simulation control system, which was sold out within minutes. This reflects HEAR’s leading market share and brand loyalty.

The Street expects HEAR’s revenues to come in at $374.81 million in its fiscal year 2021, indicating a 4.1% improvement year-over-year. Furthermore, the company’s EPS is expected to rise at a 16% CAGR over the next five years. HEAR has an impressive earnings surprise history; it has surpassed consensus EPS estimates in each of the trailing four quarters. Shares of HEAR have gained 48.2% in price over the past year and 26.5% year-to-date.

Both Wall Street analysts that rated HEAR rated it Buy. The 12-month median price target of $38 indicates a 39.4% potential upside. The price targets range from a low of $34.00 to a high of $42.00.

SONO shares were trading at $32.21 per share on Monday morning, down $0.04 (-0.12%). Year-to-date, SONO has gained 37.71%, versus a 25.17% rise in the benchmark S&P 500 index during the same period.

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

More...