Why Dolby Labs Stock Popped Today
Key Points
Dolby beat on earnings but missed on sales last night.
Both earnings and sales declined year over year -- but should improve in Q4.
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Dolby Laboratories (NYSE: DLB) stock soared 11.7% through 10:45 a.m. ET Friday after reporting mixed financial results for its fiscal Q3 2026 last night.
Heading into the report, analysts forecast the audio technology company would earn $0.67 per share on quarterly sales of $312 million -- both down significantly from last quarter. Dolby missed the sales estimate, reporting only $305 million in revenue, but beat on earnings, reporting $0.69 per share.
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Dolby Q3 earnings
Year-over-year declines looked a little better, with sales declining only 3.5%. However, it's worth pointing out that Dolby's "$0.69" per-share profit was only a non-GAAP figure. Actual earnings calculated under generally accepted accounting principles (GAAP) were only $0.30 per share -- and down 37% year over year.
Despite this fall-off, Dolby CEO Kevin Yeaman insisted the company "continue[s] to execute against our full-year objectives, and we are building momentum across several of our key growth areas."
What's next for Dolby stock
In line with this prognosis, Dolby estimates that Q4 sales will, in fact, pick up dramatically, and the company is looking for at least 19% sequential growth -- sales between $362 million and $392 million. A strong 88% gross profit margin will help transform these stronger sales into GAAP profit of $0.78 to $0.93 per share.
For the full year, moreover, Dolby is guiding to at least $1.4 billion in revenue, and GAAP profits ranging from $2.62 to $2.77. Taken at the midpoint, that works out to about a 21.5 times current-year price-to-earnings ratio.
For a company growing both sales and earnings only in the low single-digits, though, I fear that's too high a price to pay. Today's spike in the share price is best viewed as an opportunity to exit Dolby stock.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Dolby Laboratories. The Motley Fool has a disclosure policy.
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