DTS: From Blu-Ray to HD Radio

03/31/2016 8:00 am EST

Focus: STOCKS

Taesik Yoon

Editor, Forbes Investor and Forbes Special Situation Survey

Few things hurt a stock price more than when a company lowers its expectations for the current year, notes growth stock expert Taesik Yoon, editor of Forbes Investor

So perhaps it’s not surprising to see shares of DTS, Inc. (DTSI) down more than 40% in less than a year after the provider of high-definition audio solutions reduced guidance three times in as many quarters.

Yet as far as cuts go, its latest 5-cent reduction in current year earnings forecast to $2.10-2.25 per share is pretty mild and still implies exceptionally strong growth of at least 80% from 2015.

DTSI provides audio solutions that enable recording, delivery and playback of clear, compelling and immersive high-definition (HD) audio in a wide array of consumer electronics devices. 

Its DTS digital surround sound is a mandatory audio format in the Blu-ray Disc standard and is increasingly deployed in downloading and streaming of movies, music, and games. 

DTSI licenses its audio solutions and technologies to substantially all major consumer audio electronics manufacturers and collects royalties for the DTS-enabled products made by them. 

Through its 2015 acquisition of iBiquity Digital, DTSI has also become the exclusive developer and licensor of HD Radio technology. We also think investors are underestimating the value associated with the acquisition.

Its exclusive HD Radio technology is the only FCC-approved method for upgrading AM/FM broadcasting from analog to digital.

DTSI estimates that 37% of new cars sold in the US last year had factory-installed HD Radio, and we think this technology will become a more standard feature within the underpenetrated mid-priced vehicle segment.

Contributions from iBiquity combined with the rebound expected in its legacy operations makes us optimistic that the company’s days of cutting guidance may finally be over. 

If so, DTSI will have little difficulty climbing quickly to valuation levels more reflective of its compelling growth potential.

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By Taesik Yoon, Editor of Forbes Investor

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