Logitech International (NASDAQ: LOGI) investors could be scared because of the stock’s crash in 2022, but they shouldn’t be. Last year, LOGI stock lost roughly half of its value at one point before recovering a bit in the last few months. Besides the fact that Logitech’s sell-off was partly related to the overall sell-off most equities suffered, it also had to do with the company’s performance cooling from the frenzy that occurred during the pandemic (Logitech sells headsets, speakers, mice, keyboards, and more).
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While revenues and profits are set to somewhat decline this year as a result of the company’s performance normalizing, I believe that Logitech’s brand power and strong momentum could potentially point to an attractive investment opportunity at the stock’s current valuation levels. Accordingly, I am bullish on LOGI stock.
Revenues, Profits to Take a Hit in Fiscal 2023
Logitech’s revenues and profits are set to decline in Fiscal 2023 as the massive boost in demand for PC peripherals that persisted during the pandemic has finally cooled.
The pandemic forced many businesses and schools to shift to remote work and online learning, which resulted in a boosted demand for Logitech’s PC peripherals, such as webcams, headsets, and monitors, to facilitate these activities.
Additionally, with lockdowns and stay-at-home orders becoming the norm, gaming evolved into an even more prevalent medium for people to pass the time and stay connected with friends and family. In turn, this led to an upsurge in demand for gaming peripherals such as gaming keyboards, mice, and headsets.
To say that Logitech did amazing during the pandemic would be an understatement. In Fiscal 2021, revenues grew 76.5% to $5.25 billion. Then in Fiscal 2022, despite most expecting its performance to take a swift turn back down, revenues grew by a further 4.4% to $5.48 billion.
With the pandemic largely behind us and the PC peripherals market overly saturated following two back-to-back years of record sales, Logitech finally saw its top and bottom lines unwind this year.
On January 11th, the company provided a preliminary release for its Q3-2023 results, which depicted a normalization in its earnings. Once results for Q3 are audited, net sales are expected to land between $1.26 billion and $1.27 billion, down between 22%-23% compared to Q3-2022. Additionally, adjusted operating income is expected to come in between $198 million and $203 million, down between 33%-34% year-over-year.
Based on this data, management updated its Fiscal 2023 guidance, expecting Logitech sales to decline by about 13% to 15% year-over-year and adjusted operating income to be between $550 million and $600 million for the year (down 26% at the midpoint).
Strong Brand and Momentum to Feed Future Performance
Despite sales and profits set to unwind from last year’s record levels, Logitech’s strong brand and overall momentum should help sustain the company’s future growth prospects.
Basically, Logitech has established strong brand power, which can be a significant competitive advantage. Consumers are willing to pay a premium for its product, which helps the company achieve higher profit margins. Even with sales on the decline, Logitech’s adjusted operating margin in Q3 is expected to land close to 16%, which is not bad at all for the industry.
To provide some context, Corsair Gaming (NYSE: CRSR), a prominent player in the space and competitor of Logitech, has lost money in every single quarter this year so far, following PC peripheral sales relaxing. Logitech’s edge in charging above-average prices in that regard makes for a great advantage in helping retain relatively-elevated margins.
Additionally, Logitech has retained great momentum, which should aid a sales rebound once demand normalizes. This also includes China coming out of its lockdowns lately, and the Chinese market should be fruitful for Logitech in terms of expanding its customer base. For context, even with sales set to decline by about 14% this year to $4.8 billion, they will still be 72% higher than their 2019 pre-pandemic levels, which greatly illustrates Logitech’s overall momentum.
Is LOGI Stock a Buy, According to Analysts?
Turning to Wall Street, Logitech International has a Moderate Buy consensus rating based on seven Buys and two Holds assigned in the past three months. At $66.08, the average Logitech International stock price prediction implies 20.7% upside potential.
The Takeaway
The PC peripherals market can be quite cyclical. Regardless of the pandemic resulting in a one-time massive boost in sales, they can actually be easily affected by various trends and consumer purchasing power over the years.
That said, due to Logitech being one of the highest-quality players in the industry, in my view, the company should not be horribly affected by the ongoing decline in PC peripheral sales. Sure, revenues are set to take a temporary hit, but they still remain way above their pre-pandemic level. Meanwhile, the company remains quite profitable, despite margin compression in the industry, due to its strong pricing power. At a forward P/E ratio of about 16x based on estimated earnings per share of $3.56 for the year, Logitech appears to me like an attractive play in the peripherals industry, given its momentum and earnings-growth potential.
