Logitech (LOGI -0.99%), a maker of computer accessories, benefited greatly from the "work-from-home" trend brought on by the COVID-19 pandemic. Millions of people who had spent their days in offices or schools suddenly found themselves telecommuting -- often with equipment in need of replacement.
The resulting boom in demand for webcams, headsets, and other peripherals drove Logitech's stock price higher. But as the world has started to reopen, shares have fallen.
So what does the future hold for the company? Can its stock rebound from its recent slump? Here's one green flag and one red flag for the company's future prospects.
Image source: Getty Images.
Green flag: Logitech shares are the cheapest they've been in years
After peaking at $138.70 last summer, Logitech shares have taken a tumble and now trade at roughly half that dollar amount. However, as its share price has fallen, so has its price-to-earnings (P/E) ratio -- making the company more attractive on a valuation basis. In fact, Logitech's current P/E ratio of 15.9 is approaching some of the lowest levels of the last five years.
LOGI PE Ratio data by YCharts
And the stock's reasonable valuation appears to be catching the eye of some Wall Street analysts. Goldman Sachs (GS 0.22%) recently upgraded the stock to a "buy" with a price target of $115; Bank of America (BAC 3.35%) initiated coverage with a price target of $107.
Red flag: Operating margins come back to Earth
Logitech's operating margins soared during the pandemic, as remote work and school became the norm. However, after peaking near 22%, margins have started to fall and now stand at 16.3%. In the three years leading up to the pandemic, Logitech averaged margins of 8% to 12%, so it's reasonable to fear a reversion to the mean.
Moreover, Logitech's margins might come under pressure from a force disrupting the entire economy: Inflation. Prices are now rising at historic rates not seen in more than 40 years. These high rates of inflation affect producers and consumers. Rising costs for transportation and labor can eat into a company's profit margin the same way a larger grocery bill can dent a family's budget.
LOGI Operating Margin (TTM) data by YCharts
Is Logitech a buy right now?
While inflation and supply chain disruptions remain a real risk to its bottom line, I still like Logitech at its current valuation. It's probably asking too much to think it will test last summer's highs anytime soon, but that doesn't mean the stock isn't a solid value at its current price. So, if you're looking for a technology stock that has a reasonable P/E, positive free cash flow, and a modest dividend (1.4% yield), Logitech might be for you.
