Buy Logitech, It Will Crush 2013 And 2014
By Alex Cho : Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Introduction
Logitech (LOGI) markets and sells computer hardware/peripherals. The company has faced recent challenges due to lower demand in Europe, Middle East, and Africa. Despite these difficulties, I am optimistic on Logitech's growth prospects going forward.
Qualitative Analysis
Source: Information pertaining to Logitech came from the shareholder annual report
Logitech is a world renowned brand and leader in peripheral products. The peripheral segment encompasses design, manufacturing, and marketing of peripherals for PCs.
Logitech products include but are not limited to: mice, trackballs, keyboards, interactive gaming controllers, multimedia speakers, headsets, web cams, and lap desks. The large majority of Logitech's revenue comes directly from consumers rather than businesses.
Logitech has invested aggressively in Asian markets, with China being the third-largest country in retail sales for fiscal year 2012. Asian expansion is the growth catalyst behind the company going forward.
(click to enlarge)
Logitech aggressively competes with Microsoft (MSFT), Plantronics (PLT), Mad Catz Interactive (MCZ), and Universal Electronics (UEIC).
Technical Analysis
On 12-7-12 Logitech broke above the symmetrical triangle formation after bouncing off the 20-Day Moving Average. The stock is likely to recover and trend higher.
(click to enlarge)
Source: Chart from freestockcharts.com
The stock is trading above the 20-, 50- Day Moving Averages while trading below the 200-Day Moving Average. The stock found support at 6.80 per share. I believe the stock has bottomed out and is likely to trend higher on moderate volume implying accumulation in the stock. The break above the symmetrical triangle formation supports the long-thesis.
Notable support is $6.75, $7.05, and $7.50 per share.
Notable resistance is $8.75, $9.35, and $12.50 per share.
Street Assessment
Analysts on a consensus basis have extremely high expectations for the company going forward.
Growth Est
|
LOGI
|
Industry
|
Sector
|
S&P 500
|
Current Qtr.
|
-3.10%
|
-3.00%
|
N/A
|
7.70%
|
Next Qtr.
|
-29.40%
|
40.20%
|
N/A
|
14.60%
|
This Year
|
7.30%
|
-12.90%
|
68.40%
|
5.50%
|
Next Year
|
34.10%
|
24.90%
|
1.10%
|
13.10%
|
Past 5 Years (per annum)
|
-21.13%
|
N/A
|
N/A
|
N/A
|
Next 5 Years (per annum)
|
28.00%
|
15.93%
|
17.68%
|
8.77%
|
Price/Earnings (avg. for comparison categories)
|
17.45
|
12.42
|
10.77
|
14.36
|
PEG Ratio (avg. for comparison categories)
|
0.62
|
1.15
|
1.09
|
0.04
|
Source: Table and data from Yahoo Finance
The company shows phenomenal growth, as analysts, on a consensus basis have a 5-year average growth rate forecast of 28.00% (based on the above table).
Earnings History
|
11-Dec
|
12-Mar
|
12-Jun
|
12-Sep
|
EPS Est
|
0.39
|
0.07
|
0
|
0.09
|
EPS Actual
|
0.32
|
0.17
|
-0.32
|
0.35
|
Difference
|
-0.07
|
0.1
|
-0.32
|
0.26
|
Surprise %
|
-17.90%
|
142.90%
|
N/A
|
288.90%
|
Source: Table and data from Yahoo Finance
The average surprise percentage is 103% above analyst forecast earnings over the past four quarters (based on the above table).
Forecast and History
Year
|
Basic EPS
|
P/E Multiple
|
2005
|
$ 0.84
|
16.60
|
2006
|
$ 1.00
|
18.22
|
2007
|
$ 1.26
|
20.23
|
2008
|
$ 1.27
|
18.35
|
2009
|
$ 0.60
|
15.70
|
2010
|
$ 0.37
|
40.46
|
2011
|
$ 0.73
|
22.75
|
2012
|
$ 0.41
|
17.44
|
Source: Table created by Alex Cho, data from shareholder annual report, and price history is from Yahoo Finance.
The EPS figure shows that throughout the 2007-2010 period revenues dropped as the company was adversely affected by the great recession. Once the United States economy exited the recession in 2011-2012 the company earnings have gradually improved.
(click to enlarge)
Source: Table created by Alex Cho, data from shareholder annual report
By observing the chart we can conclude that the business is cyclical and is affected by macroeconomics. Therefore the largest risk factor to Logitech is the slowing of international gross domestic product growth. So as long as the global economy continues to grow, the company will generate reasonable returns over a 5-year time span based on the forecast below.
(click to enlarge)
Source: Forecast and table by Alex Cho
By 2018, I anticipate the company to generate $1.90 in earnings per share. This is because of earnings growth, improving global outlook, and continued success in China. Growth catalysts include international growth (CHINA), earnings management, and product development.
The forecast is proprietary, and below is a non-linear chart indicating the price of the stock over the next 5 years.
(click to enlarge)
Source: Forecast and chart by Alex Cho
Investment Strategy
LOGI currently trades at $7.86. I have a price forecast of $9.34 for March 2013, being that there are 3-months until March; the stock is likely to hit the price forecast. This means we should move to the long-run, and focus on 2014 as well. LOGI is in the beginning stages of a long-term up-trend. The stock may rapidly jump when it announces earnings for 4th quarter 2012 in 1st quarter 2013. It is also likely that LOGI will continue to appreciate up until it announces earnings.
Short Term
Over the next twelve months, the stock is likely to appreciate from $7.86 to $9.34 - $12.51 per share. This implies 18 - 59% upside from current levels. The technical analysis indicates an up-trend (break above the symmetrical triangle formation), while the previously mentioned price forecast using fundamental analysis further supports the trade set-up.
Investors should buy Logitech at $7.86 and sell at $9.34 to pocket short-term gains of 18% by March 2013.
Long Term
The company is an exceptional investment. I anticipate Logitech to deliver upon the price and earnings forecast despite the risk factors (macroeconomic). Logitech's primary upside catalyst is Asia Pacific growth, earnings management, and product development. I anticipate the company to deliver upon my forecasted price target of $40.34 by 2018. This implies a return of 413% by 2018. This rate of return is exceptional, considering Logitech has a market capitalization of $1.4 billion. The lack of liquidity limits this investment opportunity to smaller growth oriented investors.
Conclusion
The stock is both compelling over the long and short-term. I anticipate LOGI to beat the Standard & Poor's 500 in 2013 (the average return from equities is approximately 12% but Logitech will generate 18 - 59% in 2013). Logitech will be a great investment for many years ahead. The conclusion is simple: buy Logitech.
Source:seekingalpha.com
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