Why Logitech Is A Good Investment At 52-Week Highs

| About: Logitech International (LOGI)

Summary

Logitech is doing the smart thing by tapping key markets such as smart homes, tablets and gaming to reduce dependence on PCs.

Logitech is launching several new products in each of its target markets and also reducing operating expenses.

Logitech has a strong balance sheet without any debt, which will allow it to pursue growth in fast-growing markets going forward.

Logitech International (NASDAQ:LOGI) shares currently trade close to their 52-week highs, driven by a strong performance in the recently-reported fourth quarter results. The company's results were driven by its focus on sales of mobile speakers as the company continues to execute its smart strategy of shifting the focus of its business from computer peripherals to other areas such as tablets, gaming and connected homes. Additionally, Logitech has been able to lower its expenses, which led to a sharp growth of 61% in its earnings last quarter.

Looking ahead, it is expected that Logitech will continue performing well as it continues to focus on new areas of the mobile environment to drive growth.

Moving into connected homes with strategic launches

Connected homes, better known as smart homes, are gradually gaining steam. In fact, per Markets and Markets, this market is expected to grow at a rate of almost 18% till 2020, when it will be worth $51.77 billion. Now, to tap this huge opportunity, Logitech has been introducing new products.

Recently, Logitech launched universal remotes for smart homes, which control a wide range of entertainment and home automation devices. The launch is strategically timed as more connected devices are being introduced into the market such as the Nest Learning Thermostat, Philips hue lights, and August Smart Locks. Since the Harmony Living home lineup is expected to complement these equipments by providing centralized control to the user, they might see a spike in sales.

Gaming is another potential catalyst

Apart from making life easy with its centralized control system for homes, Logitech also is focused on the gaming market. Now, this is another huge market. According to Statista, the global PC hardware gaming market is expected to increase from $20.73 billion in 2013 to $23.11 billion at the end of 2017. Thus, it is not surprising that Logitech has released products for this market as well.

For instance, to tap this segment, Logitech recently introduced its G910 Orion Spark RGB Mechanical Keyboard. The keyboard incorporates its exclusive new Romer-G mechanical switches that are 25% faster than other mechanical switches. The product is now selling across regions such as the U.S. and Europe, among others. Looking ahead, management plans to increase the roll-out to other regions based on the response that the company gets during the initial launch.

Some negatives

Additionally, Logitech has a strong presence in the PC market and this is good news for investors. As reported by IDC, it is estimated that PC shipments will decline 4.9% in 2015, up from the earlier forecast of a 3.3% decline. Thus, there's a probability that Logitech's sales of PC peripherals will remain under pressure going forward.

Conclusion

Clearly, Logitech's focus on product innovation has helped it counter weakness in the PC market. As a result, the company's earnings are now growing at a good pace and revenue has stabilized. Additionally, the company's valuation is good enough to warrant an investment. Logitech trades at a reasonable 19 times last year's earnings, while its forward P/E is pretty low at 16. This indicates that its earnings are expected to improve at a good pace in the future.

In fact, it is expected that Logitech's bottom line will continue improving going forward, clocking an annual growth rate of 18% compared to a slower growth rate of just 6.6% in the last five years. Additionally, Logitech's earnings growth will outpace the broader industry.

Another positive factor about Logitech is that it has no debt on its balance sheet while its cash position is very strong at $537 million. Hence, Logitech can invest freely in its growth going forward due to its debt-free balance sheet. Thus, driven by its portfolio of innovative products and strong fundamentals, Logitech can continue getting better going forward.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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