Why Did Sony Corporation (ADR) (SNE) Get Such a Big Boost?

Sharp Corporation (ADR) (OTCMKTS:SHCAY) is also another Japanese giant and a major competitor of Sony in the electronics market. Compared to Sony, Sharp had been severely unprofitable in the industry, as their gross margin hovered around 8.77% compared to the industry’s 36.70%. Sharp Corporation (ADR) (OTCMKTS:SHCAY), like Panasonic, also experienced a massive loss–over the last 4 quarters, the company lost almost $7 billion.  A large part of their problems are due to their massive debt load of $14.5 billion.  However, their stock price was also boosted during May. It climbed $3.21 on May 1 to reach $5.80 on May 21, but then lost most of its gains by May 31 when it was trading at $4.65.

When most major publications and websites reported Sony Corporation (ADR) (NYSE:SNE)’s spinoff proposal, they indicated that its stock price would move based on preliminary talks about the restructuring plan. This phenomenon was also seen among Sony’s competitors. This brings us to the question: was this price move specific to Sony, or are there any underlying bullish trends forming in the consumer electronics industry?

Conclusion

Sony Corporation (ADR) (NYSE:SNE)’s new Android-powered Xperia has been earning good reviews and sales from its 4K Ultra HD TV. Since the new CEO was installed, Sony has drastically increased its gross profit margin. The spinoff plan to revive its electronics segment will certainly provide Sony free cash to invest in R&D and marketing. However, at the end of the day, the plan is still in the preliminary stages, and there is no concrete evidence that it will be carried through by Sony’s board. Meanwhile, the entire Japanese electronics industry is showing signs of improvement as far as stock prices are concerned. It would be wise to wait for a clearer trend confirmation in the industry before jumping the gun and buying at the top of a broader bearish market.

Mike Thiessen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Mike is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Why Did Sony Get Such a Big Boost? originally appeared on Fool.com and is written by Mike Thiessen.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.