Buying The Dip In Logitech

Logitech Is A Clear Winner In Tech And A Deep Value

Logitech NASDAQ: LOGI, without a doubt, has emerged as a clear winner in technology. The company makes all manner of peripheral devices for computers and devices, both work and play, and gaming, and is so well positioned for today’s market we can’t believe it doesn’t get more coverage. Share prices are down over the past seven months due to an expectation last year’s sales were a fluke but the result are proving otherwise. 

Not only has the company sustained the high levels of business spurred by the pandemic but it is growing. This has set up a buying opportunity in what we consider to be a blue-chip tech stock and one that trades at only 17.4X its earnings outlook while paying a healthy dividend. The dividend is only 1.2% but it is a safe 1.2% backed up by better than expected earnings and the cleanest balance sheet we’ve ever seen.  It also comes with a positive outlook for growth.

“I’m excited to now have in sight a fiscal year of growth for FY 2022, on top of last year’s remarkable performance,” said Bracken Darrell, Logitech president and chief executive officer. “Our Q3 results reflect the strength of our operational capabilities, innovation engine, and the choices we made to position ourselves in line with the long-term trends affecting work, play, and creating.”

Logitech Pops On Mixed Results 

Logitech had a fantastic quarter any way you look at but there is one negative that we have to point out. The company’s revenue fell -2.4% versus last year but there are so many offsetting factors it doesn’t matter. To begin, the company’s revenue grew by 85% last year so this pullback is negligible in the big picture. The revenue also beat the Marketbeat.com consensus by 1200 so is strong in its own right as well. 

Sales of Pointing Devices rose by 8% while sales of Keyboards and combos rose by 29%. Gaming devices also saw an increase but it was all offset by sales of Video, down -2.0%, and some other key areas. The takeaway here is that Video devices sales rose by 200% last year and sales are still quite strong, supported by remote work and the ever-expanding use of the Internet. 

Moving down the report, the company reported a 41% decline in GAAP earnings and a 37% decline in Adjusted earnings but the decline is not due to margin contraction but to investments in inventory and growth. In that light, the $1.24 in GAAP earnings and $1.55 in adjusted earnings aren’t bad and the adjusted earnings still beat the consensus by $0.31. 

Looking forward, the company is expecting the strength to continue and be enhanced by market share gains and expansion/acquisition. To that end, guidance has been raised for revenue and earnings with revenue now expected to be up 2% to 5% versus the previous down slightly to flat YOY with adjusted operating income up 5.8% at the midpoint of the range. 

The Technical Outlook: Logitech Puts In A Bottom, Reversal Is Next 

Shares of Logitech fell to a one-year low after hitting all-time highs in mid-2021 and now it looks like a bottom is in. Price action fell below key support during a broader market sell-off and those price levels triggered buying activity. That activity was bolstered by the earnings report which has the price up more than 6.5% in pre-market action. In our view, price action may bob along in the low $80’s in the near term but it will move higher in the short, mid, and long-term.