Logitech International SA: Should I Stay, or Should I Go?

Over the last year, Logitech International SA (NASDAQ: LOGI  ) has been going through a dramatic turnaround where its management team was replaced, costs were cut, and the company's focus was redirected to tablets vs. PC-focused products. This resulted in a fantastic quarter where the company blew away revenue and profit estimates and followed up with better-than-expected guidance. That said, shares have more than doubled since August and as a child of the 1980s, I'm reminded of the song "Should I Stay or Should I Go" by the Clash. Should you stay in the position, should you go to cash, or should you buy more?

Here's why the stock doubled
Logitech surged to a three-year high after blowing away financial results on Jan. 22. Revenues of $628 million easily beat expectations of $595 million, driving EPS upside of $0.17, as $0.35 nearly doubled the estimated $0.18. Logitech didn't hold back with guidance, either. Management guided non-GAAP operating income to $120 million-$125 million, up from $100 million.

The problem was straightforward, but the resolution was complex. Logitech was late to the tablet accessory market and when it arrived, its product releases were not aligned with the releases of new hardware.

However, Apple's iPad Air was released ahead of the Christmas season, and this time, Logitech was prepared. It released the FabricSkin keyboard folio within a month of the product launch at a premium price point. This is the first instance of Logitech timing its accessory properly, and it paid off. The idea isn't rocket science, but the execution is complex.  More detail on the turnaround can be found here.

A new management team got the turnaround humming
Bracken Darrell initially joined Logitech from Whirlpool in 2012 as president, but the real changes occurred when he was promoted to CEO in January of 2013. He went on to bring in a new CFO and in November 2013, Vincent Pilette joined Logitech from Hewlett-Packard. At Hewlett-Packard, Pilette developed experience working for a technology multinational in both the U.S. and Europe. 

That's great, but what now?
Even though the stock has had a large run, it isn't expensive. Still,  fear is winning out over greed among sell-side analysts. Earnings expectations for the full year of 2015, ending in March, are only $0.65. This seems like a huge increase over the $0.36 expected for the full fiscal year of 2014, but considering that the company just posted $0.30 in a single quarter, it seems that sell-side analysts are more afraid of drastic growth rates than they are eager to get their clients into good investments.

Upgrades can be positive catalysts
Both Barclays and Goldman Sachs upgraded the stock in January before the quarter on the strength of iPad sales. But there there are still a handful of doubters in the sustainability of the turnaround. Pacific Crest, for instance, published a note on Jan. 22 stating, "the risk/reward appears poor heading into the quarter." As analysts who have been lukewarm to the story increase estimates and/or ratings, there is the potential for a steady stream of positive catalysts ahead of the company's annual analyst day on March 6.

Don't chase it, look for pullbacks
There appears to be room to run for Logitech as we head into 2014. We don't like to chase stocks, and this is no exception, but Logitech is definitely one to watch for pullbacks, especially as the analyst day approaches on March 6.

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