Logitech (NASDAQ: LOGI) Shares Too Richly Valued at These Levels

Computer peripheral device and accessories maker Logitech International NASDAQ: LOGI shares have been scorching to new all-time highs as a beneficiary of the shelter-in-place mandates to curb the spread of COVID-19. This spurred an unprecedented demand surge for computer accessories as consumers updated everything from web cams to keyboards and headsets to better function in the new remote work, learn and play environment. Logitech was one of the few publicly traded companies that didn’t pull guidance forecasts for the year. Just like the stockpiling-theme stocks, shares of Logitech may overshot to the upside disconnecting with the reality of the eventual waning of the demand surge as isolation restrictions get pulled and workers return to offices. Investors have a prime opportunity to wind down profits during the S&P 500 index NYSEARCA: SPY melt-up before gravity and reality take hold.  

Q4 FY2020 Earnings Results

On May 12^th, 2020, Logitech reported their fiscal Q4 2020 earnings report for the quarter ending March 31, 2020. Revenues came in at $709.3 million versus consensus analyst estimates of $661.64 million, up 13.6% year-over-year (YoY). Full year 2020 sales reached its highest ever at $2.98 billion up 7% YoY. Due to Covid-19, the demand for computing peripheral devices for work-at-home and gaming was unprecedented as supplies ran out on many items. Q4 sales of Web cams were up 34% , headsets up 50% and Bluetooth microphones up 100% YoY. Supply constraints have still not caught up yet. However, the Company did note they would “not likely” see double digit PC peripheral growth continue at the pace it did in Q4. Logitech also maintained its original FY 2021 guidance of mid-single digit sales growth and $380 to $400 million in non-GAAP income. This is blatantly a low ball since the original guidance was provided on March 2^nd lowering FY20 profit outlook, before the global lockdown sales surge materialized.

Demand Surge Peak

The demand surge likely peaks out into Q1 Fiscal 2021 as the quarter ends June 30^th, with most regions lifting stay-at-home mandates as economic restarts are phased in. Like the stockpiling-theme stocks, the spike in demand can be seen as an accelerated multiple quarter sales cycle compressed into one, an artificial and unsustainable “channel stuffing” that will smooth out in 2^nd half of the fiscal year 2021. While maintaining FY2021 guidance was a refreshing change from most public companies pulling guidance, the lack of raising guidance was either a blatant low-ball attempt or a sign that demand peak has already set in to offset the spikes. Shares are already pricing in a foregone conclusion that Q1 FY2021 number will be a blowout as they make new all-time highs riding the coattails of the SPY melt-up.  

Best it Can Get

There’s no refuting the demand surge and subsequent boost to the top and bottom line for Logitech. The question is whether this accelerated growth can sustain its momentum as the bar is set high, despite the low-ball guidance for 2021. As we’ve seen with pandemic benefactors reporting stellar earnings only to have share prices sell-off under the “best it can get” narrative. Case in point, Netflix NASDAQ: NFLX reported insane subscriber growth causing shares to impulse spike to $480 in the initial moments after releasing its Q1 2020 results on April 21^st only to sell-off into the $420s by the earnings conference call. Investors may consider unwinding profits ahead of the sell-the-news reaction that is priced into the shares.

Price Trajectory Levels

Using the rifle charts on the wider weekly and daily time frames to lay out the playing field is suitable for swing traders and investors. LOGI has one of the rarest bullish charts throughout the markets. Whereas most stocks have a monthly downtrend with falling stochastic, LOGI triggered a monthly market structure low (MSL) above $38.32 then formed a monthly mini pup combined with both the weekly and daily mini pups to form a perfect storm breakout that grinded shares up towards the $60.18 Fibonacci (fib) level resistance and monthly upper Bollinger Bands (BBs). The weekly chart formed a $59.90 market structure high (MSH) with a potential trigger if the next candle makes a lower high, at which point the MSH sell triggers under the $56.68 fib. Upside breakout would target both weekly and daily upper BBs at $62.51. If the weekly MSH triggers, then downside trajectory targets sit at the $52.85 fib, $50.18 fib/ monthly 5-period moving average (MA) and $46.15 monthly 15-pd MA and daily lower BBs. Nimble traders can play reversion bounces off these levels while investors should be aware of these support levels for opportunities to trim ahead. Investors may consider unwinding positions ahead of or implementing trail stops below the trajectory levels if the bear scenario plays out.