I am not going to pretend that I did a thorough analysis of industry trends and have come up with a forecast for Sony (NYSE:SNE) revenues or profits. The analysis I did is based on the fact that every company has a minimum value based on some fundamental metrics and I believe Sony has crossed that threshold. It is now undervalued on even a minimum going-concern basis. The market is pricing in a full out bankruptcy which I don't think is likely.
Let's take a look at some balance sheets metrics.
Taking the current Price of $12.29 Sony is trading at a 50% discount to its $24.50 book value.
The shares of a company trading below book value is not by itself a sign that it is undervalued, however it is the degree of the difference that should spark further investigation. In general companies include non-tangible items on their balance sheets which may overstate the actual liquidation value of the company. This does not mean all non-tangible items are worthless, but it does put those values into question.
Sony is trading at just 7% above the net value of tangible assets.
If we remove all non-tangible assets, including those that may have real value, this still leaves Sony with $11.50 per share in net (minus liabilities) tangible assets. This value does not include the Sony brand value which in itself you would imagine would have some value. The fact that just the real hard net-assets are valued only slightly below current market price should put a floor underneath the stock price.
Sony is trading only 36% above its $9 per share holdings in cash.
Once again taken by itself this does not mean much, but combined with the two above metrics it completes a picture. It means that Sony has the means necessary to boost its share price should it choose to do so. It puts another floor underneath the stock price should hard asset valuation prove to be faulty.
Sony is trading at a 37% discount to its $19.47 Enterprise Value (EV).
EV is often used as a theoretical take-over price. This means that any potential hostile takeover company should have plenty of incentive to start buying shares. If Sony wants to prevent this type of activity it will have to use its huge pile of cash to buy its own stock.
There are also some good news for future profits from the macroeconomic front. Since Sony gets 21 percent of its annual revenue from Europe, it makes it particularly sensitive to Euro bond issues and the depreciation of the EUR. The recent bond buying program by the ECB should help.
The company is also now trading at a price it hasn't traded at since 1987. It seems to me that regardless of the problems Sony is facing at the moment, as long as it does not go out of business all together, it should be worth more than 25 years ago in nominal dollars.
I don't usually invest in individual stocks but this one interested me because it has such extreme valuation values. I've been monitoring call option activity on the stock and it is rather benign but I've taken a small call option position in the stock anyway. I think at these fundamental values the risk of any further declines is small while the potential for reward if things improve even a bit, or if there is a takeover bid, is large. In other words, a good risk/return ratio.
Disclosure: I am long SNE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.