What happened
Shares of Logitech International (LOGI -0.87%) lost 13.9% in value last month, according to data provided by S&P Global Market Intelligence. Morgan Stanley analyst Erik Woodring downgraded the stock to underweight from equal weight, expecting a slowdown in growth in the near term.
The stock has been in a downward spiral in recent months, down 11% year to date, as market participants rotate out of stay-at-home stocks into other opportunities.
Image source: Getty Images.
So what
Logitech was delivering solid growth before the pandemic but saw growth explode last year, with more people playing games and working from home. Some of that momentum carried over to the new year, with Logitech reporting a 66% increase in sales in the most recent quarter. The analyst expects this surge in growth to come to an end.
There is nothing revelatory here, as Woodring is simply mirroring the guidance that management has already given for fiscal 2022 (which ends in March). Management expects full-year sales growth, adjusted for currency, to be plus or minus 5% over fiscal 2021.
It's also worth noting that the slowing growth doesn't mean Logitech is in a weak position, but it's the opposite. Logitech's sales growth was 16% in fiscal 2018, 9% in fiscal 2019, and 7% in fiscal 2020, before accelerating to 76% last year. Logitech is generating twice the level of sales it did three years ago, yet management's guidance calls for sales to be roughly even this year over fiscal 2021. In other words, Logitech expects to maintain the higher demand floor it experienced during the pandemic, which bodes well for growth beyond the current fiscal year.
Now what
The stock may continue to underperform in the near term, as market participants wait for the difficult growth comparisons with fiscal 2021 to move behind the company. Looking further ahead, Logitech should resume its pre-pandemic growth rates in fiscal 2023.
Logitech is the Nike of esports, and with more players picking up the hobby as a result of the pandemic, Logitech's market opportunity in gaming -- its largest sales category -- is bigger than ever.
Logitech also still has an immense opportunity to sell more videoconferencing gear to people working remotely and even those at the office.
These secular trends led the stock to outperform the broader market significantly in the five-year span leading up to 2020. The lower the stock falls in the short term, the greater the return investors can expect who pick up shares at lower valuation levels.
