This Company's Next CEO Bought 12,000 Shares

| About: Logitech International (LOGI)

By Matt Doiron

According to a filing with the SEC, Bracken Darrell- former President of Whirlpool (NYSE:WHR)'s EMEA operations, and currently President and incoming CEO as of January 2013 at Logitech International SA (NASDAQ:LOGI)- directly purchased 12,000 shares of Logitech on August 6th at an average price of $8.24 per share. Logitech's products include peripherals (such as computer mice, keyboards, and webcams) and videoconferencing solutions. Insider Monkey closely tracks insider purchases because they indicate that an insider is bullish enough on the company that they are willing to forgo the benefits of diversification, and empirically they are associated with higher returns. Darrell had previously owned 100,000 shares of Logitech International SA, so his purchase represents a 12% increase in his holdings. So far this year Logitech's stock is narrowly up, underperforming the broader market.

In Logitech's first quarter results for the quarter ending in June (the company's fiscal year ends in March), the company reported a slight decrease in revenue but a 76% increase in its net losses compared to the first quarter of the last fiscal year. The revenue losses included declines in mouse devices (likely caused in part by a consumer reorientation towards touchscreens and tablets) and gaming (which is related to an industry encountering stiff headwinds). On a geographic basis, Logitech's results were the reverse of those encountered by many other global companies: increases in revenue for EMEA, decreases in revenue for the Americas and Asia Pacific.

Despite its recent difficulties, Logitech International SA is priced for growth. Its trailing price-to-earnings ratio of 29 requires earnings growth over the next few years to justify it, and sell-side analysts predict that the company will deliver- its forward P/E, based on earnings in the fiscal year ending in March 2014, is only 10. While this seems doubtful for a $1.3 billion market cap company which is losing money at a greater rate than a year ago, the most crucial figure in executing this earnings growth- the company's CEO who will take over three months before that fiscal year begins- is the man who has just put about $100,000 of his own money into the stock despite the fact that his future income also depends on the company's performance and stock price. Perhaps Darrell is being overconfident, but it is at least a good sign to see him putting more of his own money on the line. Logitech isn't a popular stock among hedge fund managers. Billionaire Ken Griffin had a tiny $1.1 million position in the stock whereas Jim Simons' Renaissance Technologies bet $700 thousand.

Logitech's peers include Microsoft (NASDAQ:MSFT) and Sony (NYSE:SNE), though these companies have many business lines aside from peripherals and networking solutions. Sony's business has also struggled recently, and even its forward P/E multiple sits at 36 despite a 46% fall in its stock price over the last year. Microsoft is about even with the market so far in 2012 despite an ambitious variety of product rollouts planned for the year, and trades at nine times forward earnings. If Logitech is going to deliver on its growth, then it needs either a widespread consumer abandonment of touchscreen devices and a return to the personal computer- unlikely, with even Microsoft getting into the tablet game and producing its own peripherals and other hardware- or an internal turnaround. We would in particular look at it versus Microsoft, which is trading at a slightly lower forward multiple, pays a moderate dividend yield, and is much of the way to its earnings projections already at a trailing P/E of 15, and say that is a better stock on purely valuation grounds. Yet Logitech's next CEO is doubling up on pulling off the scale of turnaround necessary such that the current price would in fact be too low to cover the growth that the company will deliver. We think there are probably better insider purchases to monkey, and we wouldn't consider the stock unless there are other insiders buying it.

Disclosure: I am long MSFT.

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