What happened
Shares of Logitech International (LOGI -0.05%) slumped as much as 12.7% this week after Morgan Stanley downgraded its view on the stock to bearish over the next 12 months. As of 11:31 a.m. EDT on Friday, shares were down 11.7% for the week.
So what
On Tuesday, Morgan Stanley analyst Erik Woodring released a negative report on Logitech with a price target of $82 a share. (The stock is currently trading at around $87.50.) He stated that Morgan Stanley believes the pandemic-induced cyclical tailwind for Logitech is over, noted that the company has difficult year-over-year comparisons coming up, and asserted that the likelihood of multiple compression for the stock is high.
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This makes sense since Logitech sells accessories for computers and work-from-home setups like mice, keyboards, webcams, and headsets. There was clearly a bump in demand for these products last year, which likely improved Logitech's financials and growth results. This is supported by industry data. For example, the NPD Group recently released a report on how the video game market fared in August, and sales of accessories were flat for the month compared to August 2020. This could have a direct impact on Logitech's third-quarter numbers.
Now what
A sales slowdown over the next few quarters would not be great for Logitech, but if you own the stock and have a long-term view, it isn't something to be overly concerned about. The company's revenue and earnings definitely got a bump because of the jump in video game sales, the rapid rise of the work-from-home trend, and other secondary effects of the pandemic. This might impact earnings and cash flow negatively in the short term, which could drag on the stock price. But if you are confident in Logitech's business prospects over the next decade, there's no reason to be concerned about short-term volatility like this.
