What happened

Sonos (NASDAQ:SONO) shares lost 18.5% in September, according to data provided by S&P Global Market Intelligence, as investors reacted to the company's supply chain challenges and relatively high valuation. This is yet another instance of inflation driving up production costs, and it's unclear how much of that can be passed along to consumers. Sonos acknowledged these challenges in its August earnings call, making it vulnerable to investor concerns about inflation.

So what

Sonos recently announced new products, new programming on Sonos Radio, and price increases to existing products. The management team has made it no secret that the consumer audio company is impacted by supply chain disruptions, and the global semiconductor shortage is like playing a role here as well. There's no exact blueprint for navigating these challenges, so the extent of damage is anyone's guess. There's also no indication that global supply chains or chip shortages will be sorted out any time soon. It's no surprise that investors are getting antsy.

Home wireless speaker

Image source: Getty Images.

All that said, 18.5% is a big drop without any specifically bad news. It's not as if these challenges are unique to Sonos. The company even announced price increases across its product portfolio that could be enough to solve the problem. It seems likely that the market was also reacting to Sonos' valuation, as the stock was approaching its highest forward P/E ratio since the pandemic started.

SONO PE Ratio (Forward 1y) Chart

SONO PE Ratio (Forward 1y) data by YCharts

Now what

Sonos announced price increases across all of its products, which looks like a shrewd move right now. Sonos markets high-end audio equipment, so its target customers are less likely to change their buying habits due to higher price points. These consumers were already prioritizing brand and quality over price. Sonos management is confident that customers can absorb the higher costs, having explicitly said that demand factored heavily in their decision.

The stock trades at a forward PE ratio of 25.8 relative to consensus 2022 earnings per share, and its enterprise value-to-EBITDA is now below 15. Both of these metrics indicate Sonos is well below its most aggressive valuation levels. While it's still more expensive than we've seen at points over the past year, investors can be confident that a lot of optimism has been cleared out of the price.

Risks related to the supply chain are difficult to quantify and are likely to keep threatening Sonos for the next year or more. However, investors who like Sonos' long-term fundamental opportunity should consider taking advantage of this price dip. Sonos was hit harder than the rest of the stock market, and there was no news in September to suggest the company lost nearly 20% of its value. Sonos may have just turned into an interesting value stock that's also delivering double-digit sales growth each year.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.