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If you've been shopping for a VCR, camcorder, or CD player lately, chances are you at least thought about buying a Sony. While its brand name is recognized everywhere, does the old adage "invest in what you know" apply to Sony SNE as well? According to Morningstar's stock grades, the results are mixed.

Until last year, Sony's revenue growth had been exceptional, averaging 15% over the past three years. This is pretty remarkable for a company with more than $50 billion in sales. Granted, the story was quite different in fiscal 1999. Revenues actually decreased 3% as rapid yen appreciation bit into foreign sales, hastening an already tight market for consumer electronics. Still, Sony's longer-term growth is impressive enough to merit a middling C-plus in growth.

The company does, however, sport high marks with an A in financial health. One reason for this is Sony's ability to generate plenty of free cash flow. (Unlike profits, free cash flows are not subject to accounting gimmicks.) Moreover, the company's debt/equity ratio has also steadily decreased over the past three years. Since Sony is in good health, it can easily ride out a rough year.

Things aren't so rosy when you consider Sony's D in profitability. Last year, when sales stalled, profits looked even worse, decreasing 22%. Had it not realized a one-time gain from shifting securities into a pension account, net income would have even been one third lower.

Sony doesn't score poorly in profitability just because of one bad year. Like many of its Japanese siblings, Sony has not excelled in producing bottom-line results. One example of this is its average return on assets of 3% over the past three years. While this is better than its Japanese competitors such as Hitachi ADR HIT and Sanyo ADR SANYY, it is far worse than its Dutch rival Philips Electronics PHG-which has averaged an ROA three times that of Sony.

 Report Card: Sony and Some of Its Peers
Mkt Cap
$ mil


Sony SNE48,560C+DA--
Hitachi HIT32,211C-D+B--
Sanyo SANYY8,634CD+B---
Philips PHG32,291CB+A+D
Pioneer PIO3,389D+DB-F