Ultra-rugged mobile phones and accessories provider Sonim Technologies, Inc. (SONM) is known primarily for its devices, such as its Sonim XP8, Sonim XP5 and Sonim XP3. But the penny stock has lost 40.1% year-to-date and 30.2% over the past month to close yesterday’s trading session at $0.43. And in February the stock marginally regained compliance with the minimum bid price rule required for continued listing on the Nasdaq Capital Market. SONM is based in San Mateo, Calif.
Lately, there has been a decline in hedge fund sentiment regarding SONM. The company’s top-line declined in the first quarter (ended March 31, 2021). Furthermore, its liquidity has been negatively impacted by a decline in sales of legacy products, while its next generation products are still under development. So, SONM’s near-term prospects look bleak.
So, here are the factors that we think could shape SONM’s performance in the coming months:
Narrow Consumer Base
While manufacturers worldwide are relying on advancing technologies to integrate new features into sleek and small physical devices, SONM is known for its ultra-rugged mobile phones and accessories. Its products are designed specifically for workers that are physically engaged in their work environments, often in mission-critical roles. So, there is limited scope for the company to expand its market reach.
Weak Financials and Grim Management Outlook
SONM’s net revenues for the first quarter, ended March 31, 2021, were $12.24 million compared to $12.71 million in the prior-year quarter. A decline in sales of its legacy products is primarily responsible for the decrease in its revenue. The company’s total operating expenses increased 2.6% year-over-year to $11.51 million, driven by $2.4 million in legal expenses pertaining to a previously disclosed and ongoing SEC investigation. SONM’s net loss for the quarter came in at $9.28 million compared to $9.96 in the year-ago period. Its loss per share was $0.14 versus $0.48 in the prior-year quarter.
On May 11, the company’s management commented that, “...There can be no assurance that Sonim will be able to improve its financial position and liquidity or raise additional capital. Sonim's strategic plans are not yet finalized and are subject to numerous uncertainties including conditions in the credit and capital markets.”
Unfavorable Analyst Estimates
Analysts expect SONM’s revenue to decline 33.2% year-over-year to $14.07 million for the quarter ended June 30, 2021. The company’s revenue is also expected to decline 0.4% year-over-year to $18.10 million for the quarter ending September 30, 2021. Its EPS is expected to remain negative in 2021 and 2022.
POWR Ratings Reflect Bleak Prospects
SONM has an overall D rating, which equates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. Among these categories, SONM has an F grade for Stability, in sync with its 3.42 beta.
The stock has a D grade for Quality. This is justified given SONM’s 24.39% trailing-12-month gross profit margin, which is 49.8% lower than the 48.6% industry average. Its trailing-12-month ROCE and ROTA are negative compared to the 6.86% and 3.22% respective industry averages.
SONM is ranked #49 out of 55 stocks in the Technology - Communication/Networking industry. In addition to the POWR grades we’ve just highlighted, we’ve also rated the stock for Growth, Value, Momentum, and Sentiment. Click here to get all the SONM ratings.
Better than SONM: Click here to access several top-rated stocks in the Technology - Communication/Networking industry.
Bottom Line
Even though SONM has launched new products over the past few months, such as its RT80 fully rugged tablet, the company is uncertain if it will be able to improve its financials or raise additional capital. Its revenue is expected to decline in the coming quarters and its EPS is expected to remain negative. So, we think it’s wise to avoid the stock now.
SONM shares were trading at $0.41 per share on Wednesday morning, down $0.02 (-5.53%). Year-to-date, SONM has declined -43.37%, versus a 17.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.
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