Dolby's shares experienced a notable surge of approximately 10%.
Stocks of audio technology pioneer Dolby Laboratories (DLB) saw a 10.1% rise by 10:15 a.m. ET on Wednesday, following its impressive earnings release the previous night.
Analysts anticipated a $0.70 non-GAAP (generally accepted accounting principles) earnings per share, but Dolby surprised everyone with a quarterly profit of $0.81. Sales however, missed the mark, amounting to $305 million.
Dolby's CEO, Kevin Yeaman, expressed satisfaction with the earnings. Although sales fell short, the Q4 revenue increased by approximately 5% compared to the previous year. GAAP earnings also showed a significant rise, climbing from $0.09 per share a year ago, to $0.61 per share in this Q4 of 2024.
It's essential to acknowledge the distinction between Dolby's non-GAAP profit of $0.81 and the $0.61 GAAP profit. This difference is significant when calculating the stock's P/E ratio.
Regarding the full-year results, Dolby reported a lack of sales growth compared to the previous year's $1.3 billion. However, profit for the entire fiscal year of 2024 increased by 31%, rising from $2.05 GAAP profit to $2.69.
Is Dolby stock a wise investment?
However, there's the not-so-great news for future fiscal years. For fiscal 2025, Dolby projects sequential sales growth but a substantial drop in profits. In Q1 2025, the management expects sales to range between $330 million and $360 million, with GAAP profit per share between $0.53 to $0.68. For the entire fiscal year 2025, Dolby sales will range from $1.3 billion to $1.4 billion, which translates to per-share profits between $2.43 and $2.58.
In simpler terms, sales will exhibit mid-single digit growth, but profit will actually decrease by about 7% compared to the previous year. Given that investors are potentially paying 26 times earnings for a company with negative growth in 2025, it might be smart to consider selling Dolby stock.
Given Dolby's projected decrease in profits for the fiscal year 2025, despite a mid-single digit sales growth, it might be smart for investors to consider selling Dolby stock, as they could potentially be overpaying with a P/E ratio of 26 times earnings for a company with negative growth. Investors who are interested in finance and seeking opportunities for investing in tech companies should closely monitor Dolby's performance in the coming quarters.
