Logitech (LOGI) is “severely undervalued and poised for explosive growth,” says analyst

Right. I’ve been off my Adderall for 2 weeks, thanks for that doc. However it’s given me a tolerance break. I’ve just taken 70mg of long release and 20mg of instant release. I’m also drinking some beers, and vaping some high strength nicotine; while listening to my favorite Catalan rapper ‘Gata Cattana’. I feel like a coked up squirrel. It’s Adderall DD time.

This took me 6.5 hours of PURE HYPERFOCUS to write. I started half and hour before market open. Forgot to drink water for that entire time. Puts on my hydration. Haven’t ate any food since breakfast 11 hours ago either. Enjoy!

Intro:

This is a long term play, shares or LEAPS are the way to go.

I’ve been buying logitech speakers and other products for a long time, they’ve always been great as a budget option for this category. I also have a Logitech gaming mouse (G700s), which came out as the best mid-end option in my research at the time. I’m a sim racer and have had a Logitech sim wheel, was a great budget option at the time. I’ve now upgraded to a high-end brand though. I also used a Logitech flight stick for literally forever, never failed me, I think it got lost somewhere when I stopped playing flight sims. I have a Logitech C920 webcam, bought on the recommendation of my cam-girl friends. I just use it for MSTeams/Google Classroom though…lol. I also had a Logitech microphone back when I was a teen gamer, which lasted fucking forever and was good quality for the price. My point is, if you’re a gamer, sim racer, flight sim enthusiast, enjoyer of music, office worker, remote worker, pandemic student, or general PC user…you’ve probably owned or still own many Logitech products. How have these products held up for you, were they good quality? Did they last long? I’ve generally found them to be high quality for the price, and seemed to last forever.

LOGI (Logitech International SA) popped up on my morning gap up market scanner this morning.

“Profit booking on the minds of LOGI investors as it marginally outperforms” “LOGITECH INTERNATIONAL SA delivered good returns today. It grew by +0.58% to close at 80.06. During the last week it lost -1.39% and saw a maximum drawdown of -1.96% before bouncing back.” https://imgur.com/Rnzi5eB

Todays pop was likely caused by a Citi Analyst raising their price target, thank you to /u/yoyo248 for pointing this out:

  • “@algobotnews Logitech risk/reward offers ‘very attractive opportunity,’ says Citi”
https://twitter.com/algobotnews/status/1461291610923311109

“Logitech International SA is a holding company, which engages in the design, manufacture, and marketing of peripherals for PCs, tablets, and other digital platforms. Its products include mice, keyboards, presentation remotes, headsets, and speakers. The firm offers solutions for healthy computing, wireless charging, streaming, virtual reality, rom home, schools, healthcare, and software and apps. Its brands include Logitech, Jaybird, Ultimate Ears, Logitech G, ASTRO Gaming, and Blue Microphones. The company was founded by Daniel Borel, Pierluigi Zappacosta, and Giacamo Marini on October 2, 1981 and is headquartered in Lausanne, Switzerland” (marketbeat.com)

The below DD uses multiple sources. Sorry I’m not using Harvard referencing, but my Physics papers have made me sick to death of that so I’m only doing a bibliography and linking a few articles I sourced from (not all because Reddit doesn’t allow you to link a few of the sites). Please PM me if you want this since Reddit blocks a few of the links:

Logitech is referenced as a good post-pandemic play, for a variety of reasons:

  • The company is benefiting from COVID trends, but also secular trends (“A secular trend or market is one that is likely to continue moving in the same general direction for the foreseeable future. … The secular movement of a long-term trend can be neutral (flat), positive, or negative in its direction.”).
  • It is sustaining YOY growth, paying a very safe dividend (in my research it is strongly recommended as a dividend stock). The company is investing in the ‘future’ (i’ll get onto this later). Operations are within target, there’s strong cash flow and free cash flow.
  • Logitech had a great quarter (despite rising costs, material shortfalls and margin pressure). On a two year basis, revenue is up more than 82%. No doubt due to the gaming boom during the pandemic. It is said that logitech is underperforming in cams, tablet accessories, video and headsets (which all saw high-double-digit growth last year). Which I’m surprised to see, as I’m friends with some cam girls, and the device of choice in that industry is and always has been the Logitech C920 webcam. Maybe a surge of Pandemic cam girls will offset this (in all seriousness lol, great brand loyalty to Logitech there).
  • They are delivering strength in keyboards, pointers and gaming equipment. Which doesn’t surprise me. I’ve been doing flight sims and sim racing for a long time. On the low to mid end, Logitech has been my choice and the recommended choice for flight sticks and sim wheels. Logitech is killing it in the low/mid end sim racing market.

Earnings:

  • Operating income, both GAAP and adjusted, fell 40% but largely due to a 60% increase in marketing and 30% increase in R&D. Which are acceptable reasons, as they should result in higher sales long-term.
  • The company reaffirmed its guidance for revenue and earnings at the previously stated range. “ This is calling for full-year growth in the range of flat to +/- 5% which we view as a wide range given this year’s YTD strength. The comps are going to get tougher before they get easy again but the two strongest quarters of the fiscal year are still ahead. In our view, Logitech should produce at least flat to slightly higher YOY revenue if not growth in the mid-single-digit range.” (https://www.marketbeat.com/originals/logitech-is-still-a-logical-choice-for-dividend-growth-portfolios/?focus=NASDAQ:LOGI)
  • “In Q2, adjusted earnings of $1.05 per share fell short of the consensus estimate of $1.10 per share. The company reported earnings of $1.56 per share in the prior-year period.”
  • “However, revenues of $1.31 billion were up 4% from the previous year’s quarter and surpassed the Street’s estimates of $1.27 billion.”
  • “Notably, Logitech reaffirmed its guidance for Fiscal 2022. The company expects flat sales growth in constant currency with a probable variation of nearly 5%. Further, it expects to report adjusted operating income in the range of $800 million to $850 million.” (https://www.tipranks.com/news/logitech-posts-mixed-fiscal-q2-results/)
  • Logitech CEO Bracken Darrell commented, “In Q2 we delivered record sales which beat last year’s exceptional sales levels, growing 4% in the quarter and 82% compared to two years ago. We also grew market share in the majority of our key product categories.” Looking forward, he added “We are confirming our full year outlook, despite unprecedented supply chain industry challenges. I am excited about the long-term growth potential of Logitech.” (https://www.tipranks.com/news/logitech-posts-mixed-fiscal-q2-results/)

See below charts of their earnings, financials, and P/E ratio range (source tipranks.com): https://imgur.com/SkPa2w2 https://imgur.com/f78dalw https://imgur.com/QZmSUWo

Next earnings date:

Q2 Sales:

  • “Q2 sales were $1.31 billion, up 4 percent in US dollars and 2 percent in constant currency, compared to Q2 of the prior year.”
  • “Q2 GAAP operating income declined 44 percent to $179 million, compared to $322 million in the same quarter a year ago. Q2 GAAP earnings per share (EPS) declined 48 percent to $0.81, compared to $1.56 in the same quarter a year ago.”
  • “Q2 non-GAAP operating income declined 40 percent to $211 million, compared to $354 million in the same quarter a year ago. Q2 non-GAAP EPS declined 44 percent to $1.05, compared to $1.87 in the same quarter a year ago.”
  • “In Q2 we delivered record sales which beat last year’s exceptional sales levels, growing 4% in the quarter and 82% compared to two years ago. We also grew market share in the majority of our key product categories,” said Bracken Darrell, Logitech president and chief executive officer. “We are confirming our full year outlook, despite unprecedented supply chain industry challenges. I am excited about the long-term growth potential of Logitech.” (https://www.businesswire.com/news/home/20211025005827/en/Logitech-Delivers-Record-Q2-Sales)
  • Its 3 year net income to common stockholders growth rate is now at 115.87%.
  • The 2 year cash and equivalents growth rate now stands at 11.47%.
  • Its 2 year net cashflow from operations growth rate is now at 22.74%.
  • LOGI’s revenue has moved up $3,550,043,000 over the prior 52 months.

See below: https://imgur.com/oLigSPJ (https://stocknews.com/stock/LOGI/)

Dividend:

  • Logitech pays a growing 1.12% yield, which is considered very safe.
  • As mentioned before they posted a negative cash flow for the quarter due to ad-spend and R&D, not weakness. “The balance sheet is an absolute fortress” (marketbeat.com).
  • The company net-cash with very low leverage and ample coverage. Hence no fear of dividend cut or suspension. It also gives reason to think there will be another dividend increase next year. Logitech pays out annually, and only recently made the last distribution.

The Dip:

  • Logitech has declined this year following supply shortages and a Q2 result miss (which there are ‘logical’ reasons for.)
  • Logitech is down 15% this year. It sells for 15 times earnings, it’s normal multiple in the past decade has been 23. It hasn’t been a bad year for Logitech. Revenue in the past year was up 51% and earnings were up more than 32%.
  • The stock peaked in June at about $138 and has fallen to the $80-range. Critics say the company has spent excessively on marketing. Profit margins have shrunk. However, based on Logitech’s long term record, I think it is a good play.

The Growing PC Gaming Accessories Market:

  • “Advance Market Analytics published a new research publication on “PC Gaming Accessories Market Insights, to 2026″ with 232 pages and enriched with self-explained Tables and charts in presentable format. In the Study you will find new evolving Trends, Drivers, Restraints, Opportunities generated by targeting market associated stakeholders. The growth of the PC Gaming Accessories Market was mainly driven by the increasing R&D spending across the world.”
  • “Controllers, gamepads, keyboards, cameras, virtual reality headsets, and other gaming peripherals are included in the category of gaming accessories. The global demand for gaming accessories has increased in recent years due to the rising usage of PCs. Furthermore, innovations such as virtual reality (VR) and artificial intelligence (AI) have aided the worldwide gaming accessory market’s expansion.”
  • I’ve requested a report sample from the market research companies that publish it. I’ll update the DD later with it:
  • “Dear (commodoregoat, I’ve removed my name lol), A specialist from our team will get in touch with you shortly to help you find the right insights based on your research goals. As a premier market research firm, we guarantee more than 90% accuracy on the data we provide.”
  • “Dear (commodoregoat) Thank you for your Inquiry for Global Wireless Keyboard Market Equipment Analysis and Forecast (2021-2027) by Platform type, End user and Application. Report. Our team will get back to you shortly.

Global Wireless Keyboard Market , summary linked to this report: https://imgur.com/Wj3zYW2

  • I’m going to update this with some of my own research later, as well as my findings from this report if they send me it. I requested a section relevant to Logitech. Using my student cred to hopefully get them to send me it even though I’m not a professional.

Is Logitech a bargain right now?:

I found an interesting article (after discarding many during my research) analysing if Logitech is currently a cheap stock, I’ve quoted the important parts below:

  • “Logitech, which makes input and interface devices for personal computers and electronics such as keyboards, computer mice, bluetooth speakers and universal remotes, saw its share price more than double over 2020, with the good times continuing over the first half of this year. But the stock has fallen on hard times of late, dropping 37 per cent since early June.”
  • “Appealing to the company’s significant runway ahead, however, David Driscoll (Portfolio Manager) named LOGI one of his Top Picks for the next 12 months while speaking on a BNN Bloomberg segment on Friday.”
  • “We’ve spoken about companies that have fallen more than 20 per cent from their highs despite the fact that the revenue growth and profit growth is there. The reason [Logitech] has fallen as much as it has from its high price of 124 Swiss francs to where it is at 82 is simply because of the COVID variant lockdowns,” Driscoll said.
  • “You’re not getting people out there in the gaming industry having competitions and people showing up at movie theatres to watch it,” said Driscoll, President and CEO of Liberty International Investment Management.
  • “This company makes computer mice and the trackballs, game controllers, keyboards, video cameras and multimedia speakers. So, the long term outlook for the company is very strong because, again, video gaming is going to be a thing of the future,” he said.
  • “The stock trades at 13x earnings so it’s very cheap right now. Dividends have been rising by ten per cent a year and free cash flow yields are around ten per cent relative to where bond yields are. And then when we look at the return on capital of 46 per cent versus the cost of capital at eight per cent it certainly gives Logitech a great opportunity to raise the dividends and innovate and to spend on research and development for the future,” he said. “So, I just think where we are at it’s very cheap stock,” Driscoll said.
  • “We’ve started strong in Fiscal Year 2022, with Q1 sales up 58 per cent in constant currency and profits doubling versus last year,” said Bracken Darrell, Logitech president and CEO, in a July 26 press release. “Our key categories grew high double digits. This performance demonstrates the strength of our capabilities, excellent operational execution, and ability to capitalize on long-term trends, like gaming, streaming and creating, hybrid work and video everywhere.”
  • With Logitech’s fiscal fourth quarter results in April, the company announced both an increase to its share buyback program bringing it to up to $1 billion and a dividend increase of ten per cent, saying the two moves show the company’s “continued commitment to consistently return cash to shareholders.” (https://www.cantechletter.com/2021/10/logitech-is-a-really-cheap-stock-right-now-this-investor-says/#)

What makes Logitech a good buy?:

I dislike the Motley Fool and Seeking Alpha, but I haven’t found any other good research for this section. Take (some of)this section with a grain of salt as I’m using them as my sources. If you feel like it skip past the Motley Fool/Seeking Alpha section to see my own analysis and what I’ve wrote from other sources. But so far the Fool/SA articles seem to be a rare gem on them and I’m getting useful information. I’ve mixed a decent amount of my own opinion/writing in (it isn’t just paraphrased).

  • “Logitech is still seeing high demand for webcams, keyboards, and gaming products. It’s gaining market share in secular growth categories like gaming. The stock is trading at cheap levels, despite a long runway of growth ahead.”

Takeaways from earnings report:

  • Logitech’s sales were up 58% year over year, while its operating profit more than doubled. “ In a statement, CEO Bracken Darrell said, “This performance demonstrates the strength of our capabilities, excellent operational execution, and ability to capitalize on long-term trends, like gaming, streaming and creating, hybrid work and video everywhere.”

See below: https://imgur.com/UbNXJZA

(IMAGE SOURCE: LOGITECH INTERNATIONAL’S FISCAL Q1 2022 EARNINGS PRESENTATION.)

  • The global market for webcams was estimated at $6.1 billion in 2019 (according to Grand View Research.)“According to an analysis published in May 2020, it’s expect to grow at a compound annual rate of 8% through 2027”
  • “In a similar report on gaming peripherals, the market was estimated at $3.9 billion in 2019, and forecast to grow at a compound annual rate of 10.4% through 2025.”
  • ‘Investors now seem overly concerned about a near-term deceleration in growth as the company begins to lap periods when demand spiked for its products during the pandemic. But investors should base their view of Logitech as an investment on the long-term opportunities in front of it. As Darrell said on the earnings call, “We have an exciting long-term growth potential ahead from this bigger [sales] base.”’

Gaining market share:

  • While riding trends in remote work and gaming, Logitech is also gaining market share. It is the leader in most categories it operates in (important ones to note are webcams for cam girls and web conferencing, keyboards, mouses, sim racing, flight sims, other gaming peripherals)
  • Market share gains are difficult to come by during pandemic due to supply shortages. “But with supply catching up to demand, Logitech reported share gains across most categories last quarter.“ Logitech has gained market share in gaming, where sales increased by 76% ‘on a currency-neutral basis.
  • “Darrell said that Logitech’s marketing around gaming is “probably the best we’ve had.” …having seen this statement I’m going to write a section on their marketing, to see what’s up.
  • “Logitech’s PC peripherals business grew 49% year over year, products that have been on the market for 2 years are still driving sales, including the MX Master 3 mouse and MX keys keyboard.”

Demand is high for hybrid solutions:

  • The growth of Logitech’s webcam business (lmao camgirls and zoom) supports Logitech management’s belief that the pandemic has forever changed the workplace.
  • “Darrell suggested that some people may find it awkward to do audio-only calls in the future. The company’s 73% sales growth in webcams implies that the need for hybrid solutions in the office will continue to support demand of Logitech’s products “
  • “The installed base of PCs is estimated at 1.4 billion, which gives Logitech a massive market in which to grow sales for many years. “[W]e think the opportunity there is very significant, and we’re going to keep investing,” Darrell said. “

Secular opportunities to drive long-term growth:

  • “Logitech listed four secular growth trends at its investor day held in March this year: the growth of remote work, the transition from audio toward video calls, video gaming as a spectator sport, and the spike in streaming and content creation.”
  • “Logitech expects these trends to create new opportunities” such as: Workspaces will have to be upgraded, as workers move to remote, or a hybrid model that includes remote and the office.
  • “As a result, employees/organizations can be expected to invest more money into peripherals such as keyboards, mice, tablets, and speakers, among other items.” all of which Logitech is a market leader in.
  • This just reminded me I’ve been buying logitech speakers for a long time, they’ve always been great as a budget option for this category. I also have a Logitech gaming mouse (G700s), which came out as the best mid-end option in my research at the time. I’m a sim racer and have had a Logitech sim wheel, was a great budget option at the time. I’ve now upgraded to a high-end brand though. I also used a Logitech flight stick for literally forever, never failed me, I think it got lost somewhere when I stopped playing flight sims. I have a Logitech C920 webcam, bought on the recommendation of my cam-girl friends. I just use it for MSTeams/Google Classroom though…lol. I also had a Logitech microphone as a teen gamer, which lasted fucking forever and was good quality for the price. My point is, if you’re a gamer, sim racer, flight sim enthusiast, enjoyer of music, office worker, remote worker, pandemic student, or general PC user…you’ve probably owned or still own many Logitech products. How have these products held up for you, were they good quality? Did they last long? I’ve generally found them to be high quality for the price, and seemed to last forever. I like this paragraph so I’m going to copy it as the intro. Sorry for making you re-read it, but it’s relevant to this section.
  • This investment by organisations into peripherals would spark a ‘refresh cycle’ and likely increase demand of Logitech’s products (eg pointing devices, keyboards, and tablet accessories. Logitech, from my personal impression, is a leader in the webcam sector. Cam girls all use the C920, and now students, teachers, office workers etc are all buying the C920 and others for video calls. The shift to video calls due to the pandemic means that demand for video collaboration equipment and webcams is likely to increase.
  • “Third-party research estimates the webcam market will grow at an annual pace of 16.6% through 2026 and hit $24.6 billion in value. The videoconferencing market is also expected to clock double-digit growth over the long run.”
  • This is a good sign for logitech, as video collab equipment and webcams produced more than 28% of its revenue last year.
  • The video gaming market is also driving sales for Logitech/the need for new equipment, due to the growing adoption of esports (I’m paraphrasing here, but I think Motley Fool forgot normal gamers here, a lot of us have been upgrading our PC’s, mouses, keyboards, microphones.).
  • “According to third-party estimates, the global esports market could clock 15% annual growth through 2026. This would encourage gamers to invest more money into the latest equipment, unlocking another solid opportunity for Logitech.”
  • Due to catalysts including esports, online education and other forms of content creation (eg Twitch, Youtube, Camgirls), the video streaming market is anticipated to grow at 21% a year through to 2028 ‘according to Grand View Research.’
  • “So it is safe to say that Logitech is sitting on a bunch of impressive growth drivers that could help the company deliver eye-popping results in the long run.”
  • “As such, investors looking to add a growth stock to their portfolio shouldn’t delay further. Logitech’s recent pullback has made the stock cheap, with its price-to-sales ratio of 3.96 falling below last year’s average multiple of 4.5. The earnings multiple of 22 is also below the 2020 average of 24.6. A strong earnings report could kick-start Logitech stock’s rally, which is why now looks like a good time to go long.” <- this is as of Jul 17 so outdated info, please check elsewhere in this DD for more recent info.

Logitech is an attractive opportunity now:

  • “Logitech is very undervalued at current levels.”
  • “The company has a superb track record of beating earnings estimates.”
  • “We think current price levels are attractive for long-term investors. However, we’d like to see a trend reversal before jumping in.”

Growth Catalysts:

Valuation:

  • “The intrinsic value has dropped a little to $124 per share. However, at the current price, there is finally a good margin of safety for Logitech.”

Potential Short-Term Catalysts and Risks:

  • Logitech share price has been falling for several months, this is likely due to the expectation that the boost from the pandemic will disappear and growth will decline temporarily. Current price may be too pessimistic, “especially when considering that it is already undervalued even with the expected decline in growth.”
  • Logitech tends to beat earnings estimates often. Keep in mind that recent larger beats could be due to pandemic boost. The company may face bigger headwinds than anticipated going forward.
  • However if the trend of beating earnings continues, it could give the stock a push upwards. (I’ve covered this later in the DD) Logitech is unlikely to be immune from supply chain issues that have impacted a large number of companies around the world.
  • This is an important risk to consider, especially as Logitech is largely pushing hardware products. If Logitech were to announce its inventory has been impacted, it is very possible that the stock would tumble even if they beat on expectations. Note: I think this might very well be the explanation for the current price at the $80 range, read my segment on supply chain issues later in the DD.

Final thoughts on this section:

  • “Logitech is significantly more attractive today than it was back in July. Long-term investors could potentially consider entering at these prices. However, we rate it a hold because its stock price is still on a short-term downtrend and would like to see the trend reverse before entering.” (Oct 12, 2021)

How Logitech is benefiting from the work from home revolution:

  • “Logitech’s share of the global computer peripheral equipment market grew from 0.6% in calendar 2019 to 1.0% in calendar 2020.
  • The permanent shifts in where people work and how they spend their free time may have created a new, larger base for Logitech’s sales.

Logitech’s largest segments are projected to grow at much faster rates than the rest of the computer peripherals market.”

  • The firm is well positioned to continue to profit from growth in gaming and work from home: “the shift to work from home (WFH) will support elevated profits going forward its strong position in the gaming peripherals industry, which is expected to grow 10% compounded annually through 2025
  • The firm’s history of profitable growth.
  • The current valuation already implies profits fall 32%” (Oct 11, 2021)

This article was written by u/Emony-Dax.