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Logitech (WINDOWS -1.11%) It cut its fiscal year outlook last quarter after weakening demand trends in key areas such as gaming. That decline came as little surprise to investors.
But Logitech’s business goes beyond gaming environments. It has a strong market share in a number of technology areas that can expand for many more years, even though it was set back during the pandemic.
Let’s take a look at three reasons why investors may want to take a closer look at Logitech stock today.
1. Diversified portfolio
Of course, Logitech’s gaming business is struggling right now. Sales of gaming peripherals fell 16 percent as the category shrank. Still, that decline represents only a slight pullback from the highs associated with the pandemic. The game segment is up 84% from a year ago, after all. Sales today are $283 million, or about $100 million above pre-pandemic levels.
Logitech’s broad portfolio is helping it weather the current tough sales environment as people return to normal work and play styles. It made progress in big categories like video collaboration and keyboards, and the main pointing device was flat. That distinction exposes Logitech to attractive long-term demand transitions into hybrid work and video conferencing.
2. High profitability
Logitech’s profit margins are shrinking but remain well above the levels investors saw before the pandemic. Gross profit margin fell to 40% of sales this quarter from 44% of sales. Profit margin remains strong at 13 percent of sales.
These financial gains do not mean that Logitech is immune to profit pressures. In fact, management has announced plans to cut costs in some areas this year by investing heavily in the type of research and development that will drive its long-term growth. “Our strong innovation engine combined with global growth trends…positions us well for the future,” CEO Bracken Darrell said in a press release.
3. The future of peripherals is bright.
That future looks bright, even if the current fiscal year probably represents a bit of a step back. Logitech is expecting sales to fall between 8% and 4%, compared to its previous outlook, it strives to achieve a profit of 2% to 4%.
Wall Street never likes to see sales decline, mainly because it’s hard to sustainably grow profits when revenues are declining. But it probably won’t be long before Logitech keeps growing every year. If it can maintain double-digit operating margins, meanwhile, shareholders should continue to see strong returns through the end of 2022 amid a tough sales period.
The biggest risk I see to owning this stock is the potential for Logitech to lose its leadership position around innovation. If competition closes the quality gap and the company is forced to continue cutting prices, sales trends and profitability metrics will both suffer.
But today this is not happening. Logitech has the resources to continue investing in its new product developments, and a steady stream of these releases should keep the company afloat in this growing industry for many years to come.
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