Sony shares are aiming for an annual high. What are the prospects?
Sony (TYO) shares rose 3.5% on September 21, coming to a significant resistance level. Consider recent events and near-term prospects.
Consoles are in demand. Operating profit for the last quarter, which the company reported in early August, exceeded analysts’ expectations, amounting to 280.1 billion yen ($ 2.57 billion)—driven by solid demand for PlayStation 5 consoles, TVs, music, and movies.
The company raised its profit forecast for the fiscal year ending March 2022 from 930 billion to 980 billion yen. Sony also said the pandemic continues to impact supply chains.
The company expects to sell 14.8 million PS5s in the current fiscal year. There are enough components for the console, but content needs to grow the number of subscribers. In June, the number of PS Plus subscribers decreased.
The deferred demand for consoles will perform better next year, according to DFC Intelligence forecasts. Sony’s CFO Hiroki Totoki noted that the company’s flagship product, the PlayStation 5 full version ($ 499), is no longer selling at a loss. But the digital version of the PS5 ($ 399) is still unprofitable, and this is by sales of other equipment, including peripherals and PlayStation 4.
• The deal to buy Crunchyroll from AT&T closed in late summer. Due to this, Sony is expanding its library of animated content, particularly anime films and TV shows.
Sony’s media segment faces delays in movie releases in theaters, but the company has increased the number of projects on the Walt Disney and Netflix streaming services.
• Games. The gaming segment generates a significant portion of Sony’s revenue, but many projects are delayed or postponed to next year due to the pandemic. So, the release schedule of the expected PlayStation exclusives – God of War and Horizon Forbidden West – has been shifted to 2022. In addition, the number of paid subscriptions is falling: the new generation console is out, and there are not enough new games for it.
To fill in the gaps, Sony bought little-known Finnish studio Housemarque this year. There were several exciting projects in her library, which will now develop together with Sony. This deal as one of the largest for Sony’s gaming business since 2019.
• New game. Yesterday, it became known that Sony will release a game from a little-known company that has never released a game before in the fall. Of course, we are talking about the studio Ember Lab, whose game received high reviews from critics on Tuesday. On this news, Sony’s quotes went up.
In early February, Sony shares renewed their tops for at least the last five years, after which a correction began, which turned into sideways consolidation within $ 95-113. At the end of August, the quotes failed to pass the lower boundary of the sideways trend, and a new phase of growth began. By Tuesday, the price rose to the upper border of the crosswise direction.
The technical picture looks positive so far: the daily RSI is overbought, and the MACD curves are pointing up. Buyers will soon need to overcome $ 113-113.4 from the bottom up, which opens the way to the $ 116 pivot point. Further, we can consider the scenario of updating the annual top.
The breakdown of the ascent can be judged with a steady descent under $ 107.5 with a further test of the EMA50 – $ 105. In this case, in the mid-term, the quotes may remain within the previously indicated sideways trend.
Sony is a huge diversified holding company with a focus on digital development. Reducing the impact of the pandemic will help the company increase its production of films, games, and electronics.
At the moment, the shares look very cheap at a P / E multiple of 13.4, although the forward value is 17. Although the dividend yield is low – 0.5%, its increase in the future could support the growth of quotations.
Sony is an invaluable company with great potential. According to the WSJ, 14 out of 20 analyst recommendations are to buy, four holds, and none sell. Targets range from $ 105.2–183.5, and the average is $ 138; upside potential from the current price – 22.8%.
Sony stock is worth considering buying. However, the price has not moved above the $ 113.4 resistance, and there is a risk of a downward pullback, which can use for long-term entry.
