3 Reasons DLB is risky and 1 stock to buy instead

Since April 2026, Dolby Laboratories has been in a holding pattern, posting a small loss of 0.9% while floating around $63.08. The stock also fell short of the S&P 500's 6.3% gain during that period.

Is there a buying opportunity in Dolby Laboratories, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it's free .

Why do we think Dolby Laboratories will underperform?

We're sitting this one out for now. Here are three reasons you should be careful with DLB, plus one stock we'd rather own.

1. Long-term revenue growth disappoints

Reviewing a company's long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Regrettably, Dolby Laboratories's sales grew at a weak 1.3% compounded annual growth rate over the last five years. This fell short of our benchmarks.

2. Long payback periods delay returns

The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it's the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.

Dolby Laboratories's recent customer acquisition efforts haven't yielded returns as its CAC payback period was negative this quarter, meaning its incremental sales and marketing investments outpaced its revenue. The company's inefficiency indicates it operates in a highly competitive environment where there is little differentiation between Dolby Laboratories's products and its peers.

3. Shrinking operating margin

While many software businesses point investors to their adjusted profits, which exclude stock-based compensation (SBC), we prefer GAAP operating margin because SBC is a legitimate expense used to attract and retain talent. This is one of the best measures of profitability because it shows how much money a company takes home after developing, marketing, and selling its products.

Looking at the trend in its profitability, Dolby Laboratories's operating margin decreased by 3.3 percentage points over the last two years. This raises questions about the company's expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its operating margin for the trailing 12 months was 17.7%.

Final judgment

We cheer for all companies solving complex business issues, but in the case of Dolby Laboratories, we'll be cheering from the sidelines. With its shares lagging the market recently, the stock trades at 4.1× forward price-to-sales (or $63.08 per share). At this valuation, there's a lot of good news priced in - we think there are better opportunities elsewhere. We'd recommend looking at one of Charlie Munger's all-time favorite businesses .