Shares of Logitech International (LOGI 0.49%) have been in free fall since June 2021. The computer-peripherals manufacturer's bottom line has been under pressure on account of higher costs, supply-chain problems, and tough year-over-year comparisons following the novel coronavirus-fueled sales surge in 2020.
However, Logitech's fiscal 2022 third-quarter results, which were released on Jan. 24, injected life into the stock. Logitech shares jumped 12% in the week following the earnings report as it topped Wall Street's expectations, and management also raised full-year guidance.
Let's look at the latest numbers and check if the stock's newfound momentum is here to stay.
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Logitech's results point toward improving demand
Logitech's fiscal third-quarter revenue was down 2% year over year to $1.63 billion, while adjusted earnings fell 37% to $1.55 per share. At first glance, the year-over-year comparisons indicate that all is not well with Logitech.
However, investors shouldn't forget the company enjoyed a terrific boost last year in the wake of the pandemic due to a spike in demand for keyboards, mice, webcams, and other peripherals to support remote work, online education, and video gaming. Logitech reported 85% revenue growth in the prior-year quarter, and looking at the latest results another way, the company has been able to maintain its elevated revenue levels even as the pandemic recedes in many regions.
Wall Street was actually looking for a bigger contraction in Logitech's top and bottom lines, forecasting $1.31 per share in adjusted earnings on revenue of $1.48 billion. But the steady demand resulted in stronger-than-expected growth during the quarter.
What's more, fourth-quarter guidance indicates Logitech is on track to finish fiscal 2022 with sales growth of 2% to 5% (in constant-currency terms). The company expects non-GAAP operating income to land between $850 million and $900 million. Management was originally anticipating fiscal 2022 operating income of $750 million to $800 million on flat revenue growth when the fiscal year started.
CFO Nate Olmstead attributed the outperformance and raised guidance to "impressive double-digit growth in keyboards and combos, strong single-digit growth in pointing devices and gaming, and double-digit sequential growth in video collaboration." It's worth noting that Logitech's sales and earnings were hurt by supply-chain constraints during the quarter. The company had insufficient stock of keyboards and gaming wheels, in addition to rising costs, which dented revenue growth three to four percentage points and brought down gross margin two percentage points.
Logitech could have delivered even better results had it not been for factors out of its control. More importantly, the company may be able to report accelerating growth in the new fiscal year as it faces easier year-over-year comparisons.
Why you should be buying the stock
Logitech is on track to sustain its momentum for a few reasons. For instance, the demand for key categories such as video conferencing is set to rise, thanks to the adoption of a hybrid work culture. CEO Bracken Darrell explained on the latest earnings call:
In video collaboration, we're starting to see some increased activity in our office reopening and hybrid work planning. Video collaboration sales improved this quarter, nearly equaling last year's high levels that [sic] when sales more than tripled. We delivered 24% quarter-over-quarter growth, and conference cameras grew double digits year over year.
Logitech management believes the demand for video-collaboration equipment will remain strong as people take to this medium to remain connected with each other, and third-party estimates also indicate the same. Global Market Insights estimates the video-conferencing market could clock a compound annual growth rate of 23% through 2027, setting up a tailwind for Logitech's products.
Similarly, the demand for gaming peripherals is also expected to head higher. Logitech can count on the growth in the number of people playing video games, as well as upgrades by existing gamers, to keep driving sales of its gaming-related products. For instance, the number of active video gamers across the globe could jump from an estimated 2.8 billion last year to 3.1 billion in 2023. Not surprisingly, the global market for gaming accessories is expected to hit $15.4 billion in 2026, compared to $7.8 billion in 2020, according to Mordor Intelligence.
All of this indicates that Logitech operates in a market built on secular growth, which is why the company is well-positioned after a muted 2021. Its valuation, meanwhile, is the icing on the cake. Logitech is trading at 18 times trailing earnings, well below its five-year average multiple of over 25. This makes it an ideal investment for anyone looking for a bargain.
