Dolby Laboratories, Inc. DLB stock has gained 16.5% in the past six months, outperforming the Audio Video Production industry and the S&P 500 composite’s growth of 12.9% and 7%, respectively.
Price Performance
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The DLB stock declined 0.1% in the last trading session and closed at $81.59. The stock is trading 9% below its 52-week high of $89.66, reached on Jan. 30, 2025.
The recent pullback along with strengthening top-line performance and emerging new business opportunities are appealing to investors. With all these factors in the backdrop, investors are left wondering, is it right time to buy the stock?
Looking at Key Growth Catalysts of DLB
Dolby’s performance has been gaining from the increasing adoption of Dolby Atmos and Dolby Vision. Dolby continues to make significant strides in several key areas in the fiscal first quarter, including robust momentum in content creation and securing new partnerships, especially in music, movies, sports and automotive.
On the last earnings call, Dolby noted that all eight 2025 Grammy nominees for Best New Artist are available in Dolby Atmos. Also, seven out of eight nominees for Record of the Year and Album of the Year are available in Dolby Atmos. Management highlighted that nearly 80% of the domestic box office and almost 70% of the global box office titles were released in Dolby Atmos and Dolby Vision formats in 2024. It announced partnerships with more than 20 OEMs which now have over 60 models in the market with Dolby Atmos.
Several partners are now expanding Dolby Atmos deeper into their product lineups, which bodes well for Dolby. In the fiscal first quarter, Amazon unveiled its first sound bars that support Dolby Atmos. Another encouraging development was that several PC OEMs, like Asus, Dell, Lenovo and Samsung, have announced new computers, laptops/peripherals that support Dolby Atmos and Dolby Vision.
At CES 2025, Dolby secured notable commitments from TV manufacturers like Hisense, TCL, Panasonic, Sharp and RCA, all of which showcased new models with Dolby Atmos and Dolby Vision. For fiscal 2025, the company expects Dolby Atmos and Dolby Vision along with imaging patents to grow around 15%.
The company’s focus on strategic acquisitions bodes well. In June 2024, it announced the buyout of GE Licensing from GE Aerospace for $429 million in an all-cash transaction. GE Licensing, a leading innovator in patent licensing and management, is a subsidiary of GE Aerospace that designs, develops and produces jet engines, components and integrated systems for military, commercial and business aircraft.
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With this acquisition, Dolby expects to bolster intellectual property portfolio through the strategic integration between its existing licensing businesses and GE Licensing's portfolio of video codec technologies (HEVC and VVC). Dolby settled the acquisition of GE Licensing in the fourth quarter of fiscal 2024, strengthening its imaging patent portfolio.
Apart from this, the acquisition of THEO Technologies in July 2024, worth $55 million, is aiding its Dolby.io offerings. With THEO, the company plans to address the growing demand for designing customized experiences in sports and entertainment.
Dolby, with its robust financials, employs diligent capital deployment strategies to ensure growth. The capital allocation strategies are designed to maintain a flexible capital structure and deliver value to its shareholders through sustainable growth, solid margins, strong cash flows and returning capital. Moreover, the company dedicatedly follows a balanced capital deployment strategy and continually rewards its shareholders through share repurchases and dividend increases.
As of Dec. 27, 2024, the company had $520.8 million in cash and cash equivalents, with $641.6 million in total liabilities. In the fiscal first quarter, Dolby repurchased 186,000 shares of its common shares for $15 million and ended the quarter with $387 million of stock left under repurchase authorization.
However, global macroeconomic weakness and softness in device sales are weighing on foundational revenue growth. The company continues to expect revenues from foundational audio technology to be roughly flat on a year-over-year basis. For fiscal 2025, management continues to expect Consumer Electronics to be down mid-single digits, while broadcast and PC are expected to witness flattish sales.
DLB Trades Above SMAs and Its Discounted Valuation
DLB stock is trading at a discount, with a forward 12-month Price/Earnings of 19.44X compared with the industry’s 43.31X.
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DLB’s shares are trading above 50 and 200-day moving averages, indicating a bullish trend.
Is it a Good Time to Invest in DLB Stock?
Dolby’s encouraging outlook for fiscal 2025 and strategic initiatives including expansion across multiple high-growth sectors, such as automotive, consumer electronics and entertainment, along with robust cash generation and shareholder returns, make it an attractive investment for the long term.
DLB currently carries a Zacks Rank #2 (Buy).
Other Stocks to Consider
Some other top-ranked stocks worth consideration from the broader technology space are Watts Water Technologies WTS, InterDigital, Inc. IDCC and Celestica Inc. CLS. IDCC and CLS presently sport a Zacks Rank #1 (Strong Buy) while WTS carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for WTS’ 2025 EPS is pegged at $9.08, unchanged in the past seven days. WTS earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 6.23%. Its shares have increased 7.1% in the past year.
The Zacks Consensus Estimate for IDCC’s 2025 earnings is pegged at $9.30 per share, unchanged in the past seven days. IDCC’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, while missing in one, with the average surprise being 158.4%. Its shares have surged 95% in the past year.
The Zacks Consensus Estimate for CLS’ 2025 EPS is pegged at $4.78, improved 3 cents in the past seven days. CLS earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, while matching one occasion, with the average surprise being 10.27%.
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