$LOGI Stock: A look at how the LOGI stock price is affected by the price of Raw Materials

$LOGI- Logitech Stock Analysis:

Company Overview:

$LOGI- Logitech Inc. designs, manufactures, and markets digital and cloud products internationally. The company offers mouses; keyboards, keyboard-and-mouse combinations; webcams; as well as other accessories for mobile devices. It also provides keyboards, mice, headsets, and simulation products, such as steering wheels and flight sticks for gamers; video conferencing products; portable speakers, microphones, in-ear headphones; controllers for smart home devices.

Logitech segments their earnings based off of geography. Logitech reports under 3 segments which include: America’s (North, Central, and South), EMEA (Europe, Middle East, and Africa), and Asia Pacific (Asia, Australia, New Zealand, and surrounding islands/countries).

Investment Information:

Seasonality:

Logitech has noted in their previous SEC Filings that they are a relatively seasonal business, with their Q3 (October — December) typically being the highest performing quarter. This is due to the increase in consumer demand from the year-end holiday buying season. This will be important to note as they will be reporting these earnings on January 17th.

Management Team:

This sectioned is designed to give you (the reader) insight into the background of the highest (executive) managers/officers at Logitech. The following people are listed as the highest-ranking members of the Logitech Management Team.

Bracken Darell (President & Chief Executive Officer): Bracken Darrell (BA, MBA) joined the Logitech Management Team as President in April 2012 and became Chief Executive Officer in January 2013. Prior to joining Logitech, Mr. Darrell served as President of Whirlpool EMEA and Executive Vice President of Whirlpool Corporation, from January 2009 to March 2012. Previously, Mr. Darrell had been Senior Vice President, Operations of Whirlpool EMEA from May 2008 to January 2009. From 2002 to May 2008, Mr. Darrell was with the Procter & Gamble Company (P&G), as the President of its Braun GmbH subsidiary. Prior to rejoining P&G in 2002, Mr. Darrell served in various executive and managerial positions with General Electric Company from 1997 to 2002, with P&G from 1991 to 1997, and with PepsiCo Inc. from 1987 to 1989. Mr. Darrell holds a BA degree from Hendrix College and an MBA from Harvard University.

Nate Olmstead (Chief Financial Officer): Nate Olmstead (BA, MBA) joined the Logitech Management Team in April 2019 as VP of Business Finance and managed to move up to Chief Financial Officer as of July 2019. Prior to joining Logitech, Mr. Olmstead served at Hewlett-Packard Company and Hewlett-Packard Enterprise, most recently as the VP of Finance for Global Operations from June 2017 to March 2019. Mr. Olmstead holds a BA degree from Stanford University and an MBA from Harvard University.

*The rest of the management team, and my overall thoughts on them can be found in the full analysis here*

Competitors:

In order to undergo the comparable analysis, we need to get an idea of their closest competitors. These competitors must operate in the same space, operate in similar geographies, be of similar market cap, and have valid financial ratios. Using this criterion, I came up with the following.

  • $CRSR — Corsair Gaming: Corsair Gamin, designs, markets, and distributes gaming and streaming peripherals, components, and systems internationally. Corsair offers gamer peripherals, including gaming keyboards, mice, headsets, and controllers, as well as capture cards, stream decks, and USB microphones. It also provides gaming components such as CPU’s, computer cases, and prebuilt & custom-built gaming PCs. It sells its products through a network of distributors and retailers, including online retailers, as well as directly to consumers through its websites.
  • $DELL — Dell Technologies: Dell designs, develops, manufactures, markets, sells, and supports IT solutions, products, and services worldwide. The Infrastructure Solutions segment provides various storage solutions and servers, software, and peripherals. The Client Solutions segment provides desktops, workstations, and notebooks; displays and projectors; and support & deployment. The VMware segment focuses on the IT priorities of their customers, including adopting cloud technologies, modernizing their applications, empowering digital workspaces, and embracing intrinsic security to cater to the ever-changing business environment.
  • $WDC — Western Digital : Western Digital develops, manufactures, and sells data storage devices and solutions internationally. It offers client devices, including hard disk drives (HDDs) and solid-state drives (SSDs) for desktops, PC’s, gaming consoles, mobile phones, tablets, and wearable devices. The company also provides data center devices and solutions comprising enterprise SSDs for use in enterprise servers, online transactions, data analysis, and other applications, as well as data storage platforms. In addition, it offers client solutions, such as external Hard Drives; portable SSDs; removable cards, and flash drives. Western Digital sells their products under the G-Technology, SanDisk, and WD brands to original equipment manufacturers, distributors, dealers, resellers, and retailers.
  • $STX — Seagate Technologies: Seagate provides data storage technology and solutions in Singapore, the United States, the Netherlands, and internationally. The company offers hard disk and solid-state drives, and storage subsystems. It also provides enterprise data solutions including storage subsystems and private cloud storage solutions for enterprises. In addition, the company offers external storage solutions under the many of their subsidiary brands.

Financial Information:

  • Yearly Financial Performance (Good): In 2020, Logitech was able to increase their sales in each geographical region by at least 72% YoY. Furthermore, Logitech experienced the largest sales increases in the following product categories: PC Webcams (240% YoY), Tablet & Accessories (184% YoY), Video Collaboration (186% YoY), and Gaming (80% YoY). Additionally, in 2020 Logitech increased their total sales by 76%, increased gross profit by 108% (increasing their gross margin to 44.5% from 37.7%), while managing to only increase their operating expenses by 40% (far lower than other increases, which lead to a better operating margin), and increased their net incomes by 110%.
  • Yearly Financial Performance (Bad): In 2020, there was little to complain about when discussing Logitech’s financial performance. The only downsides I could find were the following decreases in product categories: Mobile Speakers (-21%), and Smart Home Devices/Products (-21%).
  • Q2 (July — Sept) 2021 Financial Performance (Good): In Q2 2021, Logitech managed to increase their sales by 4%. Additionally, the following product segments performed the best in Q2: Pointing Devices (+12%), Keyboard & Combos (+17%), and Gaming (+11%). Furthermore, Logitech was able to increase their revenues in their EMEA, and Asia Pacific regions by 2.5%, and 12.3%.
  • Q2 (July — Sept) 2021 Financial Performance (Bad): Conversely, in Q2 2021, Logitech performed rather poor overall, exhibiting decreases in the following areas: -5% in gross profits, +46% in operating expenses, -44% operating income, -48% in net incomes, and decreases in the following product categories: PC Webcams (-8%), Mobile Speakers (-9%), Audio & Wearables (-145), and Smart Home Devices/Products (-34%). Lastly, Logitech’s America’s geographical segment essentially stayed constant (decreased by 0.15%). This poor performance can be explained through supply chain issues driving the prices of their inputs (raw material) increasing by 40% YoY.

Investment Valuation:

Comparable Analyses:

By comparing Logitech’s financial ratios to that of their publicly listed competition (listed above in the “competitors” section) I found the following:

P/E Ratio:

Based off of Logitech’s Price to Earnings Ratio in comparison to their competitors, $LOGI stock should be valued at $73.07 /share, which would imply a share price decrease of 10%.

P/B Ratio:

Logitech’s P/B ratio (compared to their counterparts, (minus Seagate as their P/B was ridiculously high)) indicates that the LOGI stock should have a fair value of $53.87/share, which would imply a downside of 33%. This is a large downside risk and is due to the exclusion of Seagate

EV/EBITDA Ratio:

Logitech’s EV/EBITDA ratio indicates that their fair value is $74.53/share, which would translate into a potential downside risk of 8%. All 3 comparable analyses are in agreeance that Logitech is undervalued, however the results vary heavily.

Comparable Valuation:

Due to the variability between comparable analyses, I decided to take average the 3 comparable results. By doing this I arrived at a final comparable valuation of $67.16, which implies a downside risk of 17%.

DCF:

The comparable analyses tell quite a different story than the DCF model does. This is due to the fact that Logitech has experienced high growth over the past couple years, which make their ratios look relatively high on paper. However, by inputting the necessary data into my DCF model, it arrived at a fair valuation of $LOGI stock of $123/share, which implies an upside potential of 53%.

Dividend Discount Model:

My dividend discount model uses the current annual dividend amount in combination with Logitech’s average annual dividend growth (over the past 2 years), and their WACC (as found in the DCF model). By using these metrics, I was able to find Logitech’s fair value to be $113/share, which implies an upside of 40%.

*The overall valuation and a supporting image of my excel sheet can be found in the full analysis here*

Investment Plan:

My plan for an investment in the $LOGI stock would go as follows:

  • Enter into a position below the fair value, preferably at/below $80/share.
  • Hold long-term (with dividend re-investment)
  • Re-evaluate the position as new data is released (especially their financial reports to see if they continue their growth, or if their growth starts to fall short of expectations).

*The risks and catalysts associated with the LOGI stock can be found in the full analysis here*

P.S: I wrote this whole analysis using the help of both my wireless Logitech Keyboard, and wireless Logitech Mouse. So, watch out for my impact on their Q3 2021 financial results in January (Only kidding… Hope you enjoyed this analysis).

Originally published at https://utradea.com.

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The social platform for investment ideas and insights. Check out utradea.com for the latest investment content.

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