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Shares of audio-meister Dolby Laboratories (NYSE: DLB) stock surged 10.1% through 10:15 a.m. ET Wednesday after reporting strong earnings last night.
Expected to earn only $0.70 per share non-GAAP (generally accepted accounting principles), Dolby surprised Wall Street analysts with a quarterly profit of $0.81. Sales fell slightly short of estimates, coming in at $305 million.
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Dolby's Q4 earnings
CEO Kevin Yeaman pronounced himself pleased with the quarter's results. Although Dolby missed on sales, its Q4 number still grew about 5% year over year. Even better, earnings as calculated according to GAAP multiplied, rising from just $0.09 per share a year ago, to $0.61 per share in this Q4 2024.
(Investors should note the difference, though, between Dolby's non-GAAP, pro forma profit of $0.81 and the $0.61 GAAP profit. When calculating the stock's P/E ratio, for example, your data provider will be using the GAAP number).
Turning to full-year results, Dolby said sales fell short of last year's $1.3 billion -- so no sales growth for the year, but some sales growth at the end of the year. Profits for all of fiscal 2024 rose $2.69, up 31% from last year's $2.05 GAAP profit.
Is Dolby stock a buy?
And now we come to the bad news section of this earnings report: Looking ahead to fiscal 2025, Dolby predicts sequential sales growth, but a significant drop in profits. In Q1 2025, management forecasts between $330 million and $360 million in sales, and $0.53 to $0.68 in GAAP profit per share. For all of fiscal 2025, Dolby sales will range from $1.3 billion to $1.4 billion. This translates to per-share profits between $2.43 and $2.58.
Put another way, sales will grow in the mid-single digits, but profits will actually decline about 7% year over year. Investors may be cheering Dolby's results today, but I doubt they'll enjoy paying 26 times earnings for a negative grower in 2025.
My advice: It's probably time to sell Dolby stock.
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