Logitech Should Gain From Holiday Electronics Sales

The Swiss-based Logitech International SA (LOGI) designs, manufactures and markets personal peripherals for digital technology platforms. What exactly are digital peripherals? They way LOGI explains it, they include products such as its Advanced Universal Remote Controls for Home Theater; iPod & MP3 Speakers, Headphones, and Wireless Music Systems; Webcams, Headsets and Voice Access equipment; G7 Laser Cordless Mice; G15 Gaming Keyboards; Gamepads for the PC; G25 Racing Wheels for video games; Controllers for PlayStation 3; and Universal Remotes for Xbox 360.

More than likely you have one of these LOGI products in your home or office. With the holiday season upon us and consumer electronic performing well, LOGI stands to gain as well.

Its market capitalization has grown above $5 billion and annual revenues have swelled to roughly $1.94 billion. The firm has over 7,000 employees and sells its products through distributors, original equipment manufacturers and regional and national retail chains throughout North America, Europe and Asia Pacific.

What has made LOGI such a successful investment for us over the past few months is the market recognition of its solid financial performance. Growth, margin and profit numbers have all been stellar. For example, its 18.90% revenue growth over the most recent quarter dwarfed the industry average of 7.10%. Moreover, its trailing twelve month operating margin of 10.92% is more than three times the 2.91% average of its peers. Additionally, the 30.21% one year ROE of LOGI is ranked second in the sector.

Even with its recent stock price run up, as of the close of market yesterday LOGI sports a one year P/E ratio of 26.64 that continues to trail its peer group average of 30.90. My last observation is a forward PEG (price to earnings to growth) which our algorithms ignore because it is based on street speculation and not published facts (we do look at historical PEG). However, the street matters when it comes to pricing, especially in the short- to mid-term. LOGI is listed with a 5 year forward PEG of 1.47 compared to its peer group’s 1.85.

With this data we continue to like the story / fundamentals / valuation. It appears the company seems to agree with us as it continues to repurchase its stock. November 7 it announced a $250 million buyback program right on the heels of its recently completed share buyback program of 300 million Swiss francs.

Disclosure: We are long LOGI

See: Logitech F2Q06 (Qtr End 09/30/06) Earnings Call Transcript

LOGI 1-yr chart:

Comments

[Michael Com...:]

LOGI is also beating the crap out of its competitors. I just hope they don't make too much stuff for the Zune!

2006 Dec 01 08:10 AM