Logitech International (NASDAQ:LOGI) delivered another great quarterly report on Tuesday, with strong results reflecting continued high demand for keyboards, webcams, and other PC peripherals. But investors were disappointed with management's outlook, which anticipates that sales will be flat on a constant-currency basis in its fiscal 2022 (which will end in March). The shares sank by 10% during the trading session after the fiscal Q1 2022 earnings report was released, but at its now-lower price, this stock could be a value investor's dream.
Trading at a forward price-to-earnings (P/E) ratio of 25, it's hard to argue that the stock is overvalued, especially with analysts forecasting that Logitech's earnings per share will grow at an annualized rate of 30% over the next five years.
Here are three takeaways from the earnings report that show why the stock is a great value at these levels.
1. Business momentum is strong
Logitech's sales were up 58% year over year after adjusting for currency changes, while its operating profit more than doubled. In a statement, CEO Bracken Darrell said, "This performance demonstrates the strength of our capabilities, excellent operational execution, and ability to capitalize on long-term trends, like gaming, streaming and creating, hybrid work and video everywhere."
Industry estimates suggest that Logitech is not done growing. The global market for webcams was estimated at $6.1 billion in 2019, according to Grand View Research, and according to an analysis published in May 2020, it's expected to grow at a compound annual rate of 8% through 2027. In a similar report on gaming peripherals, the market was estimated at $3.9 billion in 2019, and forecast to grow at a compound annual rate of 10.4% through 2025.
Investors now seem overly concerned about a near-term deceleration in growth as the company begins to lap periods when demand spiked for its products during the pandemic. But investors should base their view of Logitech as an investment on the long-term opportunities in front of it. As Darrell said on the earnings call, "We have an exciting long-term growth potential ahead from this bigger [sales] base."
2. It's gaining market share
While it's riding secular trends in remote work and gaming, Logitech is also gaining market share. It's the leader in most of the categories it operates in, but market share gains were difficult to come by during the pandemic due to supply shortages. But with supply catching up to demand, Logitech reported share gains across most categories last quarter.
Most importantly, Logitech said it gained share in gaming, where sales increased by 76% on a currency-neutral basis. Darrell said that Logitech's marketing around gaming is "probably the best we've had."
Recent innovations are also playing a role. Logitech's PC peripherals business grew by 49% year over year, with products that have been on the market for two years still driving sales, including the MX Master 3 mouse and MX Keys Keyboard.
3. Demand is high for hybrid solutions
The growth of Logitech's webcam business supports management's belief that the pandemic has forever changed the workplace. Darrell suggested that some people may find it awkward to do audio-only calls in the future. The company's 73% sales growth in webcams implies that the need for hybrid solutions in the office will continue to support demand for Logitech's products.
The installed base of PCs is estimated at 1.4 billion, which gives Logitech a massive market in which to grow sales for many years. "[W]e think the opportunity there is very significant, and we're going to keep investing," Darrell said.
Investors who are looking to add some growth to their portfolios should consider Logitech stock at its current levels. A forward P/E of 25 is not expensive for a company that can deliver double-digit-percentage annual earnings growth over the long term.