Is Logitech Stock a Buy?

Computer peripheral and video hardware company Logitech (NASDAQ:LOGI) has declined in price precipitously over the past two years.

Going into 2023, LOGI share price trades at less than half of its previous highs. So, it it on sale? And is Logitech stock a buy now?

Financials: A Tale of Two Halves, Sales & Profits

In Q3, Logitech’s revenue dropped 12 percent year-over-year to $1.15 billion. Operating income saw a much larger drop, falling from $179 million in 2021 to $127 million in 2022.

Earnings for the quarter, however, beat analyst expectations. Logitech reported $0.77 per share in Q3, compared to a consensus estimate of $0.73.

Management accredited the falling sales and lower earnings to difficult macroeconomic conditions. One of the key culprits, according to the Q3 report, appears to have been an overly strong US dollar.

Adjusted for constant currency, for example, total sales dropped only 7 percent. Given that the US dollar is expected to remain strong in 2023, Logitech could continue to see headwinds arising from currency balances throughout the coming year.

Despite falling operating income, Logitech’s profitability metrics remain quite positive. Net margin currently stands at just under 10 percent, while return on equity remains at a healthy 25 percent.

These numbers point to strong execution by management and solid unit economics. Assuming conditions do not become persistently worse, it seems unlikely that Logitech will slip into negative earnings territory or lose appreciably more ground than it already has.

Over the coming year, projections are that Logitech’s earnings will improve by about 16 percent to $3.54 per share. The next several years, however, are not expected to be particularly strong growth years for the firm.

The company’s sales are forecast to remain largely flat over the next five years. During the same period, free cash flow per share could also contract significantly, though overall earnings are expected to remain fairly steady.

Analysts Are Split Over Logitech Fortunes

Analysts have a mixed view on Logitech over the coming 12 months, but sentiment generally leans positive. The consensus among analysts is $68, a 21.9 percent increase from the current price of $55.80.

It should be noted, however, that two analysts have rated the stock as a sell, and the lowest price target of $37.60 would represent a loss of more than 30 percent. As such, there’s at least a credible case to be made for Logitech carrying significant downside risk.

Logitech has several points in its favor in terms of valuation. In addition to carrying no long-term debt, the stock trades at a relatively reasonable multiple of 16.64 to expected earnings. The company generates $6.59 per show in cash flow, well above the average for its industry.

Logitech pays an annual dividend which could enhance its overall return. The most recent payout was $1 per share, a yield of 1.79 percent. Although this is relatively low, the firm’s comparatively low payout ratio of under 40 percent could give it room to raise its dividend going forward.

Over the coming three years, Logitech is projected to raise its dividend at a compounded rate of 7.73 percent annually.

What’s Anchoring Logitech From Making Progress?

As Q3’s results showed, inflation, currency imbalances and changes in consumer behavior have the ability to depress sales significantly.
Of particular concern is the ongoing slowdown of the gaming industry. Logitech’s gaming hardware sales dropped 10 percent year-over-year in Q3, suggesting that this once-lucrative business line could be in for a rough period ahead.
Slow long-term growth is also a risk for investors. Although the company has demonstrated that it can remain profitable during difficult times, it is expected to see a low rate of earnings growth for some time after 2023.
It should be noted that these expectations could easily change based on future market conditions. A rebound in gaming sales, for instance, could result in both higher revenues and earnings.
Management could also face ongoing production difficulties due to its reliance on Chinese manufacturing. China’s economic slowdown and rough emergence from lockdowns have caused many companies to examine alternative manufacturing hubs.
Apple, for instance, is investing in manufacturing capacity in India to produce nearly half of all iPhones within a few years. If Logitech does not begin to make similar pivots away from China, its competitors could gain a long-term production advantage.

Is Logitech a Good Buy?

Although Logitech has both positive and negative factors, the stock on balance appears to be a moderate buy at today’s prices. With a more or less fair valuation, no debt and the pontential for an earnings rebound in 2023, Logitech could help investors realize decent returns.
The company is continuing to invest in new research and development, which will likely allow it to continue bringing new products to market. In Q3, for instance, management announced the addition of 20 new products to its line.
As the company continues to release new and improved products, particularly in cutting-edge categories, it should boost revenues by attracting more consumers.
Logitech may also appeal to investors who want to combine tech exposure with income investing. The company is one of relatively few tech manufacturers that pays a substantial dividend, and there is a good chance that management will continue to raise the annual distribution in coming years.
While Logitech may or may not deliver large returns this year, the company appears to be on solid footing and could be a good long-term investment. Improvements in sales and earnings could both drive share prices higher, while a lack of debt will likely insulate the company from the effects of higher interest rates.
Overall, Logitech could be a good stock for investors to own as part of a broader tech portfolio.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.