3 Stocks Set To Benefit From Work From Home

Summary

• Logitech is seeing a boost in demand as employees upgrade their home work stations.
• DocuSign has been on fire (in a good way) as the company provides software that allow for remote documents which is particularly useful as people maintain social distancing.
• Microsoft is seeing strength in their Teams software that should lead to higher Office 365 subscriptions and should see some strength in gaming as individuals stay at home.

Introduction

COVID-19 has caused businesses and employers to change not only how they operate, but how and where employees work. More than ever before employees are working from home. Whether this remains a temporary phenomenon or a more permanent shift remains to be seen, but here are three companies benefiting from the shift to working from home.

Logitech: Providing Tech Peripherals

Logitech (LOGI) has seen an increase in demand on the back of work from home policies as employees and employers upgrade their home work stations. Logitech sells many of the essential computer peripherals including keyboards, mice, webcams, microphones and all sorts of other accessories employees may need to upgrade in order to work from home.

Logitech reported a fiscal Q4 earnings beat back in mid-May with its webcams and video collaboration segments seeing substantially higher than expected growth at 32% and 60% year over year.

Source: Logitech Q4 and Fiscal 2020 Financial Results Presentation

Furthermore, Logitech just announced a 10% increase in their dividend and a new $250M stock buyback program. The company is expecting to earn $380M to $400M in non-GAAP operating income in fiscal 2021, which would come in flat to up slightly from $387M in fiscal 2020. Logitech has earned a return on invested capital of over 30% the last two years and is looking like they'll see a solid ROIC in 2021 again from sustained demand for their products.

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YCharts

Logitech's EV/EBIT ratio is near the higher end of its 5-year range. While on the one hand this intuitively says the stock is fairly expensive, the increased demand for their products could very well justify a higher valuation.

DocuSign: Making Remote Documents Easier

DocuSign (DOCU) has been a high flyer as investors flock to their shares. The stock has nearly doubled this year. The company provides various cloud-based software services that allow for electronic signatures, document generation, contract negotiation, and even some legal analytics features. Clearly, these capabilities improve the working from home experience, getting the market excited over the company's potential.

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YCharts

DocuSign reports earnings on June 4, 2020, for the quarter ended in April. Analysts expect revenue of $281.12M and $0.10 in EPS. This would put revenue growth at over 31% year over year and more than double EPS. The company has a strong history of sequential quarter over quarter growth that is expected to continue, but this growth comes at a price.

Source: TIKR.com

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DocuSign trades at a valuation exceeding an enterprise value of more than 20 times revenue. This certainly isn't cheap, and I'm not convinced is justified by the 30% revenue growth rate (although EPS growth is significantly higher). I would caution investors to really look at this one in more depth before investing.

Microsoft: Strength

Microsoft (MSFT) has seen a huge increase in Teams users amid the pandemic as employees look for ways to communicate remotely. Microsoft reported 75 million daily active users on the software by the end of April. Up from 44 million in mid-March and nearly quadruple the 20 million users Microsoft had last November. Furthermore, I would expect Microsoft's Office 365 subscriptions (Teams is included with the corporate Office 365 subscription) and windows 10 sales to also be strong as employees setup or purchase new PCs or laptops and use Microsoft's programs. I even expect Microsoft's Surface lineup of various hardware devices to do well as people make upgrades for more mobile work-related activities.

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YCharts

Unlike Logitech and DocuSign, as of the time of writing Microsoft has yet to breach its all-time highs set back in February. Microsoft had a more muted reaction in March than many companies as shares declined a relatively modest 30% from peak to trough. Since then, shares have recovered virtually the entire down move.

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YCharts

Not only is working from home propelling Microsoft's valuation and stock price higher but strength in gaming and an upcoming video game console release later this year are also factors at play here.

An enterprise value of 24 times EBIT and a P/E ratio of 27.5 isn't what you'd call cheap, but it's far from the most expensive technology stock out there. 2020 should be a good year for Microsoft and the valuation reflects this. Microsoft is likely a good longer-term pick with some shorter-term catalysts that could boost results over the next couple of quarters.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Comments

[GreenPirate]

Microsoft is a bargain. Many have not yet seen the critical role it plays in both work at home and work in offices. Its red today, will it fall below 185 a share? If so buy it. If not buy it.

[Jack the poodle]

with the country re-opening, the stay-at-home thesis is waning.

[Lukas Wolgram]

Stay at home is, we'll see about work from home. I suspect some businesses will realize how much money they save if they get rid of some offices.

[Jack the poodle]

thanks for the tip on xpel!

[GreenPirate]

I believe this is right, and workers will push to stay at home now. Its easy to get use to and then 'taking it away' becomes the issue.

But companies can save a lot too. Consider just the parking alone for a large corporation. The utilities for a large building full of people. The new demands in place due to COVID-19, which is not waning, its increasing again in some places. And that will no doubt continue for the next half of a year anyway. Health experts have made some dire predictions, which I tend to think (hope) are too pessimistic, but corporations will be factoring them in.

The rush back to employment could start to unravel. Still, in an election year people count on stock markets rising and self fulfilling prophesies tend to come into play.

[Agnee Tips]

What about FSLY? Their edge computing is in great demand.

[Lukas Wolgram]

I need to look into FSLY some more. I've heard great things about that company from some solid investors I know of but haven't actually taken a good look myself.

[User 49537809]

msft is trading at 35 times earning great company but no way at that valuation

[Dividend Ambassador]

MSFT is crazy expensive. Don’t talk yourself into some twisted logic as to why it is reasonably priced.

[StockHarvestor]

Office 265？Never heard about it, LOL

[wsoyke]

Lukas. Dude! You're 24. You don't have to be too analytical. Just buy MSFT, as much as you can, on the first of every month, preferably in a ROTH, drip the dividends, retire rich at age 50.
A case could be made that other names are better value or might deliver more short term. But MSFT is more certain to deliver in the long run. The cash flow is solid and recurring and will support buybacks and dividends for many years to come. The need for tech and a cloud to run it on will explode in the years to come.
Nice article. New follower.

[Lukas Wolgram]

@StockHarvestor haha nice catch. I have submitted an edit to fix that.

[Lukas Wolgram]

Thanks, I don't disagree with your assessment, however, I run a highly concentrated portfolio of high growth small-cap stocks that I think should almost certainly outperform the giant mega-caps like Microsoft. Most of my money is in Xpel, which I think is perhaps one of the best companies in the world.