Logitech International (LOGI +0.47%) stock was trading down by 6% as of 12:20 p.m. ET Monday after investment bank Morgan Stanley downgraded the computer peripherals maker to underweight (i.e., sell) and predicted the stock would fall to $75 over the next 12 months.
That's now the lowest price target assigned to Logitech by any bank on Wall Street, according to StreetInsider.com.
NASDAQ: LOGI
Key Data Points
What Morgan Stanley said about Logitech
In Monday's note, Morgan Stanley analyst Erik Woodring said he had conducted a "deep dive into LOGI's biz" and concluded the company can only grow sales at about 3% annually over the next three years. Investors, however, are valuing the stock as if they think Logitech will grow by as much as 10% annually over that period.
Woodring predicts that Logitech's fiscal Q4 2024 earnings report, due out April 29, will convince investors that its growth prospects are limited, and cause a "de-rating" of the stock. (In other words, he expects other analysts will follow his lead and downgrade Logitech.)
Is Logitech stock a sell?
If Woodring is right about all that, it obviously wouldn't be good news for the stock. I mean, just look at how much the stock has fallen in the wake of just one analyst's downgrade. But does Logitech deserve such punishment?
I'm not sure it does.
Priced at 28 times earnings, Logitech stock looks expensive on the surface. But the company actually generates much more free cash flow (FCF) than its earnings metric reflects. It produced $1.05 billion in free cash flow over the last 12 months and, relative to its $13.5 billion market capitalization, this works out to a P/FCF ratio of less than 13 -- less than half its P/E. The company also boasts a fortress balance sheet, with $1.3 billion more cash on its books than debt, and it pays a modest dividend that yields 1.3% at the current share price.
While it's certainly possible Morgan Stanley is right and Logitech won't grow as fast as some anticipate, all the numbers I'm looking at tell me Logitech stock is not overpriced -- and might even be a bargain.
