Logitech International (LOGI 3.79%) has struggled on the stock market so far this year thanks to the broader decline in tech stocks, but this is an opportunity for savvy investors looking to add a fast-growing computer peripherals manufacturer to their portfolio.
Logitech stock has given up almost all of the impressive gains it clocked in the early part of the year, but it could reverse course sooner than later and regain its mojo. That's because Logitech is sitting on solid catalysts that helped the company recently upgrade its fiscal 2021 guidance and also issue a better-than-expected forecast for fiscal 2022. Let's take a look.
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Logitech's upgraded guidance points toward better times ahead
Logitech's upgraded fiscal 2021 guidance (which ends on March 31) calls for revenue growth of 63% in constant currency terms over the prior year. Earlier, the company was expecting top-line growth of 57% to 60% this fiscal year. Logitech has also bumped up its non-GAAP operating income forecast to $1.1 billion for the full year, from $1.05 billion earlier.
Logitech investors can thank the sharp spike in demand for video gaming gear, remote work hardware, and video collaboration tools in the wake of the novel coronavirus pandemic for such strong growth. The company's outlook, however, suggests that there will be a notable drop in the company's growth this fiscal year as the pandemic-related tailwinds subside.
Logitech expects revenue to remain flat year over year in fiscal 2022, which begins next month. While that's a bummer and may put off growth-oriented investors who saw their Logitech investment double in 2020, it is worth noting that the guidance is better than Wall Street's expectations. Analysts were originally expecting Logitech's revenue to contract by 2% in fiscal 2022.
What's more, Logitech also laid out an impressive long-term forecast that calls for constant currency sales growth between 8% and 10% as compared to its prior expectation of high single-digit growth. The company has also hiked its long-term non-GAAP gross margin target to a range of 39% to 44% from its prior forecast of 36% to 40%. The non-GAAP operating margin is now expected to fall between 14% and 17% as compared to the earlier range of 11% to 14%.
The improved long-term guidance suggests that Logitech can keep getting better in a post-pandemic world. That won't be surprising as the products and solutions that Logitech deals in are expected to remain in high demand. For instance, gaming PC (personal computer) shipments can jump 25% by 2024 to 62 million units, according to a third-party estimate.
This should ideally lead to a jump in sales of gaming-related peripherals such as mice, keyboards, and other items, which bodes well for Logitech as gaming is the biggest revenue generator for the company. The gaming category supplied 26% of Logitech's total revenue last quarter, and the future of this business seems bright thanks to the increased interest in gaming in a post-COVID world.
Similarly, the market for video collaboration tools is also going to get bigger in the future thanks to an increase in remote work. Global Market Insights expects the video conferencing market to grow at an annual pace of 19% through 2026 and exceed $50 billion in revenue at the end of the forecast period. This should be another tailwind for Logitech as it gets close to 18% of its total revenue from this segment.
Why you should be buying
Logitech stock is trading at just 18.3 times trailing earnings, well below the company's five-year average price-to-earnings (P/E) multiple of nearly 27. Buying Logitech stock at this valuation would make a lot of sense right now given the company's potential for delivering strong earnings growth in the long run, as its recently updated guidance suggests.
Analysts expect Logitech's earnings to grow at more than 30% a year for the next five years, exceeding the pace it has clocked in the past five years. Logitech looks capable of delivering on this front given the potential margin expansion in the cards, making it a value stock that one could buy right now thanks to the recent sell-off.
