The share price of Logitech International SA (LOGI, Financial) has risen roughly three-fold since the market bottomed out in March 2020. That will not be a surprise to investors who’ve watched the company’s bottom line over the past five years. During this period, the average annual Ebitda per share growth rate was 32.60%, while the average annual EPS without NRI growth rate was 40.90%.
So, it’s no surprise, either, to see the share price has risen an average of 31.54% per year over the past five years:
About Logitech
Listed on the Nasdaq and in its home country, Switzerland, Logitech is a $20.26 billion company. This slide from the company's fourth quarter fiscal 2021 investor presentation lists the computer peripherals and tablet product lines and their recent sales:
The company’s fiscal year ended on March 31, 2021. In its 10-K for fiscal 2020, it described itself as follows:
“Logitech is a world leader in designing, manufacturing and marketing products that help connect people to digital and cloud experiences. More than 35 years ago, Logitech created products to improve experiences around the personal computer (PC) platform, and today it is a multi-brand, multi-category company designing products that enable better experiences consuming, sharing and creating digital content such as computing, gaming, video and music, whether it is on a computer, mobile device or in the cloud. Logitech’s brands include Logitech, Logitech G, ASTRO Gaming, Streamlabs, Ultimate Ears, Jaybird, and Blue Microphones.”
Recent results
For the full fiscal year that ended on March 31, Logitech reported positive results. Sales were up 76% to a new company high of $5.25 billion. In terms of constant currency, the increase was 74% compared to fiscal 2020.
The GAAP operating income popped 315% to $1.15 billion, while GAAP earnings per share grew 107% to $5.51 compared to $2.66 in fiscal 2020. Non-GAAP earnings per share were up 199% to $6.42 compared to $2.15 the previous year. Cash flow from operations increased from $425 million in 2020 to $1.46 billion.
Competition
Logitech said of its competition:
“Our product categories are characterized by large, well-financed competitors, short product life cycles, continual performance enhancements, and rapid adoption of technological and product advancements by competitors in our retail markets. We have experienced aggressive price competition and other promotional activities from our primary competitors and less-established brands, including brands owned by some retail customers known as house brands. We may also encounter more competition if any of our competitors in one or more categories decide to enter other categories in which we currently operate.”
While competitors vary by product line, a few names stand out because of their size and presence in the market. This group includes Apple Inc. (AAPL, Financial), Microsoft Corporation (MSFT, Financial) and HP Inc. (HPQ, Financial), as well as niche players such as Zagg Inc. (ZAGG, Financial), Poly, Inc. (POLY, Financial) and GN Netcom/Jabra.
Financial strength
A solid financial footing will make many investors comfortable with Logitech, especially value investors who dislike debt. As the cash-to-debt ratio of 50.85 shows us, the company has little debt in relation to its cash. That’s illustrated in this chart:
The company has allocated its capital well, with a return on invested capital of 8.34% versus a weighted average cost of capital of 4.48%.
Profitability
Both the operating margin and net margin are strong and have grown significantly in the past few years:
Return on equity and return on assets have also trended in the right direction in recent years:
We can draw the same conclusion, on a per-share basis, about revenue, Ebitda and EPS over the past decade:
Dividends and share buybacks
Dividends per share have been growing since Logitech instituted them in 2013:
However, the dividend yield has been depressed by the far more rapid growth of the share price:
The dividend payout ratio is just 16%, so there is room to grow it substantially, judging by the performance of free cash flow:
What the company is not offering is shareholder returns via share buybacks. In fact, it has been issuing more shares than it has been buying back in recent years:
Valuation
Given that the share price has roughly tripled since March 2020, we might expect the stock to be overvalued. Indeed, the GuruFocus Value chart weighs in with a rating of "significantly overvalued."
However, when we factor in the rapid rise of Ebitda, a PEG ratio below 1.0 emerges. Logitech's PEG ratio of 0.67 indicates the stock is actually undervalued, despite its rapid rise.
Those distinctly different assessments are the result of two different ways of estimating value. The PEG ratio, which is the price-earnings ratio divided by the five-year Ebitda growth rate, emphasizes bottom-line growth. On the other hand, the GuruFocus Value chart is based on three other factors: (1) historical multiples, (2) a GuruFocus adjustment factor based on past returns and growth and (3) future estimates of the company’s business performance by Morningstar analysts.
Gurus
The investing gurus have been split on their buys and sells of the stock over the past two years:
Four gurus held positions in Logitech at the end of the first quarter. They were:
- Jim Simons (Trades, Portfolio) of Renaissance Technologies, who reduced his firm's holding by 35.66% during the quarter and finished with 1,291,563 shares. That was good for a 0.77% stake in Logitech and represented 0.17% of the firm's total assets under management.
- Pioneer Investments (Trades, Portfolio) owned 748,783 shares at the close of trading on March 31, after a reduction of 34%.
- Jeremy Grantham (Trades, Portfolio) of GMO LLC held 33,272 after increasing the holding by 2.57%.
- Lee Ainslie (Trades, Portfolio) of Maverick Capital reduced his position by 94.74% to finish the quarter with 26,143 shares.
Conclusion
Logitech is a revenue and earnings powerhouse, leading to above-average returns; as noted, the average EPS without NRI growth rate was 40.90% per year over the past five years. Predictably, the share price has also risen dramatically in the same period. And there is no reason to think it won’t continue to climb in the next five years, in my opinion.
The dividend is reasonable; however, it is not worth chasing when the share price is as high as it is now. Valuation is more debatable, depending on how much weight you give to Ebitda growth. Value and growth investors who put significant weight on the growth factor will find a stock that is both undervalued and carrying a negligible amount of debt.
