Logitech: Too Cheap To Ignore – Seeking Alpha

January 15, 2022 by No Comments

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Investment Thesis

Logitech (NASDAQ:LOGI) is a world leader in designing, manufacturing, and selling the computer and entertainment peripherals. Their mouse, keyboard, webcams, and other gaming peripherals are in market leading position and command a premium from customers. During the pandemic their revenue grew rapidly as people renovated their home offices and purchased more gaming peripherals. As people start returning to work, the market is expecting Logitech’s growth rate to slow down. I believe the market is overestimating the slowdown and Logitech is a bargain at this point. Logitech provides a great investment opportunity for a value investor because:

  1. The revenue growth rate may slow down, but their regular (pre-pandemic) year growth rate (9-10% per year) is still impressive. I believe they will maintain that level for the foreseeable future.
  2. Their products are considered some of the best on the market and command a premium from customers. Their high profit margins demonstrate their economic moat.
  3. They have an exceptionally strong balance sheet with negligible debt ($43 M) compared to their pile of cash ($1.14 B).

Revenue growth to continue, but at a more normal level

Logitech posted remarkable growth since the start of the pandemic, as people raced to equip their home workspaces. YoY sales grew 75% in Q2 2020 from peripherals, webcams, audio equipment, and smart home equipment. Although sales pace has slowed substantially, it remained strong through 2021 with 4% YoY growth. This is much more consistent with the about 9% annualized growth of the 5 years prior to the pandemic. The tapering revenue was expected as people finished outfitting their new home workspaces. However, the transition into new norms for work and entertainment is far from complete, and should drive future growth. In fact, the global computer peripherals market is expected to grow by 5.1% CAGR through 2027.

Source: Seeking Alpha

Several trends will continue to push up the use of peripherals. First, in the near future people will increasingly shift into hybrid workplaces. Many will return to offices on at least a part time basis and these offices will need to be updated to accommodate a fluid workforce. For example, Logitech management points out that there are 90 million meeting rooms worldwide, but only 8% are outfitted with video equipment. Office spaces will need to offer more flexible meeting rooms going forward as it becomes mainstream to have employees distributed across locations. Second, people are increasingly turning to their computers for entertainment. Gaming and digital creation continue to surge. Hours watched across media platforms, such as YouTube, Twitch, etc., have increased 20% YoY for two consecutive years. There are no indications of slowdown even as we leave the pandemic lockdowns behind us. More and more people are both creating and watching content. This will continue to fuel growth in video, gaming, and peripherals going forward.

Market leadership position and high profitability

Logitech is in an excellent position to capitalize on the changing trends and growing market. Logitech is a leader in video conferencing equipment, selling around 50% of all devices. They are also a strong player in the gaming accessories and productivity market. They lead the field in design and technical engineering for productivity keyboard/mouse sets, offering innovative keyboards such as MX Keys Mini and POP keys as their most recent launches. Logitech has recently adopted an innovation-led business model (rather than promotion-led) and has increased R&D spending by 29%. Taken together, Logitech …….

Source: https://seekingalpha.com/article/4477500-logitech-logi-stock-too-cheap-to-ignore

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