Logitech Stock (NYSE:LOGI): Weakness in PC Peripherals Market is Transitory

Logitech (NYSE:LOGI) is currently navigating a challenging period in the PC peripherals market, which has had a negative impact on its financial performance. This Swiss designer and manufacturer, known for producing high-quality mice, keyboards, and other PC peripherals, has experienced a significant decline in its stock price since its peak in 2021.

Logitech’s share price decline reflects the underlying drop in demand for PC peripherals, which can be attributed to market normalization after the pandemic-driven craze that occurred a couple of years ago. However, it’s worth noting that Logitech continues to demonstrate impressive growth on a normalized basis, even in the face of headwinds from its industry’s cyclical nature.

As the recent challenges appear to be linked to the normalization of Logitech’s growth trend, it is reasonable to expect that the current phase will be temporary and that the company’s growth trajectory should pick up in the future.

In fact, I find it likely that Wall Street is currently overlooking Logitech’s earnings growth prospects in the face of short-term uncertainty, which could imply notable upside potential. Hence, I am bullish on the stock.

Logitech’s Q1 results may not look that good at first glance, with revenues and net income declining by 16% and 38% to $375.0 million and $62.7 million, respectively. However, I believe that investors need to look at the bigger picture, as context is very much needed in this case.

Here are Logitech’s total sales in recent years.

Fiscal 2017: $2.22 billionFiscal 2018: $2.57 billionFiscal 2019: $2.79 billionFiscal 2020: $2.98 billionFiscal 2021: $5.25 billionFiscal 2022: $5.48 billionFiscal 2023: $4.53 billion

As you can see, between Fiscal 2020 and Fiscal 2021, Logitech’s revenues skyrocketed by 76%. Logitech’s elevated sales persisted through Fiscal 2022, growing even further in that year. This was the result of the COVID-19 pandemic. Whether it was regular people upgrading their PC gear to work more comfortably from home or gamers upgrading their setups at a time when entertainment outside our homes was limited, Logitech enjoyed unprecedented demand for its peripherals.

It wasn’t until Fiscal 2023, which ended in March, that Logitech started seeing normalization in demand, with revenues declining by 17.3% to $4.53 billion. Given that PC peripherals feature a lifetime of at least a few years before they are replaced, it only makes sense that Fiscal 2024 will also be a year of declining revenues.

However, when taking a broader perspective, it becomes evident that Logitech’s growth trend is gradually stabilizing rather than witnessing a decline in revenues. For example, while its Fiscal Q1-2024 revenues of $975.0 million were notably lower than Q1-2023 revenues of $1.16 billion and Q1-2022 revenues of $1.31 billion, they are still considerably higher than the pre-pandemic Q1-2020’s revenues of $644.2 million.

If someone back in 2019 were to tell you that Logitech’s revenues would have grown by 51% in the next four years, you would say that this is an excellent result. It’s only due to the parabolic revenue growth during the pandemic that one could perceive Logitech’s recent numbers as worrisome.

Wall Street analysts seem to be well aware of the transitory nature of Logitech’s recent top-line headwinds, as the company is expected to see its profits approach their pandemic highs by next year. Specifically, while Fiscal 2024 EPS is set to decline by a further 9.1% to $2.93, it is expected to reach $3.76 in Fiscal 2025, not far from Fiscal 2022’s $3.85. For context, in Fiscal 2020, Logitech’s EPS landed at $2.70, which again highlights my earlier point of looking at the bigger picture regarding the stock’s investment case.

Assessing whether LOGI stock is reasonably valued can be somewhat challenging due to the company’s cyclical nature, which necessitates a forward-thinking mindset. If we were to utilize this year’s projected EPS of $2.93, the stock is trading at a forward P/E of 23, which may seem like a rich multiple for a PC peripherals company. Based on next year’s projected EPS of $3.76, though, the P/E quickly falls to 18, given Wall Street’s expectations for an earnings rebound.

Overall, I would argue that LOGI trading at 18 times its “normalized earnings” is rather reasonable given its growth prospects and strong brand. Logitech has lots of room to expand its market share, with the company constantly optimizing its product portfolio.

For instance, the company recently introduced VC Webcams, VC Headsets, PC Headsets, and Wearables to its product lines, which should help expand its market presence and capture a larger set of consumers in the space.

Regarding Wall Street’s sentiment, Logitech International features a Moderate Buy consensus rating based on four Buys, five Holds, and one Sell assigned in the past three months. At $72.21, the average Logitech stock price projection implies 5.7% upside potential.

Despite facing challenges in the PC peripherals market, Logitech’s recent financial performance should be seen in context. The company experienced extraordinary growth during the pandemic, leading to a normalization phase in Fiscal 2023 and Fiscal 2024.

However, Logitech’s overall growth trend remains positive, and Wall Street expects profits to reclaim their pandemic highs by Fiscal 2025. With a strong brand and diverse product portfolio, strong growth potential, and expanding market presence, investors seeking exposure to the PC peripherals market will likely find Logitech an appealing investment option.

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