Logitech International (LOGI 0.69%) crushed Wall Street's expectations last week with terrific revenue and earnings growth in the first quarter of fiscal 2022, but the stock price tanked big time on concerns about the company's ability to sustain its impressive growth.
Logitech shares crashed nearly 10% after the report. Investors didn't like the fact that Logitech maintained its full-year revenue guidance instead of upgrading the same even after delivering solid year-over-year growth last quarter. This indicates that Logitech may have to suffer revenue declines in the latter part of the year as it faces tough year-over-year comparisons following last year's pandemic-related boom.
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However, savvy investors should treat this drop as an opportunity to buy more shares, as Logitech appears to be built for long-term growth. Let's see why.
Logitech International sizzles once again, but investors aren't happy
Logitech's Q1 revenue jumped 58% year over year in constant currency terms to $1.31 billion, while non-GAAP earnings shot up 91% to $1.22 per share. The bottom-line growth outpaced the revenue jump thanks to an improved margin profile. Logitech's adjusted gross margin increased to 43.8% during the quarter from 39.2% in the year-ago period, while operating margin increased to 17.9% from 14.8% a year ago.
The computer peripherals manufacturer enjoyed terrific growth across most of its business segments on the back of secular tailwinds. For instance, revenue from keyboards and combos increased 44% year over year, driven by the introduction of new products. Gaming products sales witnessed a 76% jump. Video collaboration revenue was up 72% over the year-ago period, and demand for PC (personal computer) webcams continued to remain high, as the 73% year-over-year revenue growth shows.
Image source: Getty Images.
The results clearly indicate that the catalysts created by the coronavirus outbreak last year are still driving Logitech's growth. Video games continue to remain in hot demand, while the shift to remote work and the adoption of a hybrid work model continue to be tailwinds for the company.
Nevertheless, investors decided to dump the stock as Logitech simply reaffirmed its full-year guidance. The company expects revenue to remain flat this fiscal year and deliver non-GAAP operating income between $800 million and $850 million. Logitech had delivered $1.27 billion in adjusted operating income last year on $5.25 billion in revenue.
These numbers indicate that Logitech's top-line growth momentum is likely to fizzle out later in the year and earnings could decline. However, there are a couple of reasons why investors should ignore the near-term headwinds and focus on the big picture.
Don't miss the forest for the trees
Logitech International is sitting on a bunch of catalysts that are here to stay for the long run. For instance, Jon Peddie Research forecasts that the demand for high-end PC gaming hardware could increase at a compound annual growth rate (CAGR) of more than 20% through 2024. Similarly, the global video conferencing market is expected to clock a CAGR of 11.4% through 2028.
Tailwinds such as these will continue to expand Logitech's addressable market. TechNavio estimates that the PC peripherals market could add $43 billion in revenue from 2020 to 2024.
The good part is that Logitech is aggressively going after this opportunity. The company increased its operating expenses by 76% last quarter in a bid to increase consumer awareness, improve customer support, and drive innovation. The bump in these expenses is going to take a toll on Logitech's bottom line in the near term, but it would set the company up for long-term growth.
Of course, the surge in Logitech's growth last year will make year-over-year comparisons tough this fiscal year, but investors shouldn't forget that the company is likely to regain its mojo as it is tapping a huge end-market.
It is therefore not surprising to see why analysts expect Logitech's earnings to increase at an annual rate of more than 30% for the next five years. This makes Logitech an ideal stock to buy after its latest pullback, especially considering that it is trading at just 17 times trailing earnings as compared to the S&P 500's average of 35.
