Logitech (LOGI 1.00%) lowered its fiscal-year outlook this past quarter after demand trends weakened in key areas like gaming. That downgrade wasn't much of a surprise for investors, who had sent the stock lower in 2022 on fears of a growth hangover following soaring sales through most of the pandemic.
But Logitech's business is about more than just gaming peripherals. It has a strong market share position across several tech niches that should expand for many more years, notwithstanding a pullback in the immediate wake of the pandemic.
Let's look at three reasons why investors might want to take a closer look at Logitech stock today.
1. The diverse portfolio
Sure, Logitech's gaming business is struggling right now. Sales of gaming peripherals declined 16% as the category shrank. Still, that drop only represented a small step backward from pandemic-related highs. The gaming segment expanded by 84% a year earlier, after all. Sales today are $283 million, or about $100 million above the pre-pandemic level.
Logitech's wider portfolio is helping it navigate through the current tough selling environment as people return to more normal work and play patterns. It achieved growth in big categories like video collaboration and keyboards, and the core pointing device niche was flat. That diversity exposes Logitech to attractive long-term demand shifts toward hybrid work and video meetings.
2. Highly profitable
Logitech's profit margins are declining but remain well above the levels that investors saw before the pandemic struck. Gross profit margin fell to 40% of sales this quarter compared to 44% a year ago. Operating profit margin is still strong at 13% of sales.
These financial wins don't mean Logitech is immune from profit pressures. In fact, management said that it is planning to cut spending in some areas this year, while still investing heavily in the type of research and development that powers its long-term growth. "Our strong innovation engine," CEO Bracken Darrell said in a press release, "paired with secular growth trends ... position us well for the future."
3. The peripherals future is bright
That future looks bright, even though the current fiscal year will likely represent a small step backward. Logitech is expecting sales to fall by between 8% and 4% now, compared to its previous outlook calling for gains of 2% to 4%.
Wall Street never likes to see declining sales, mainly because it is hard to sustainably boost profits while revenue is shrinking. But it likely won't be long before Logitech is growing on an annual basis. If it can maintain a double-digit operating margin, meanwhile, then shareholders should continue to see solid returns even through a difficult selling period through late 2022.
The biggest risk I see to owning this stock over the long term is the potential for Logitech to lose its leadership position around innovation. Sales trends and profitability metrics would both be hurt if competition closes the quality gap and the company is forced to keep cutting prices.
That isn't happening today, though. Logitech has the resources to keep investing in its new product developments, and a steady stream of those releases should keep the company on top of this growing industry for many years to come.
