Logitech is a really cheap stock right now, this investor says

Bargain hunters seemingly have a wealth of tech stocks to choose from right now, considering the pullback across the sector, but being selective at times like these might be your best option. And as far as inexpensive-looking names out there, portfolio manager David Driscoll thinks Swiss-based Logitech International (Logitech International Stock Quote, Charts, News, Analysts, Financials NASDAQ:LOGI) is definitely a stand-out. 

Logitech, which makes input and interface devices for personal computers and electronics such as keyboards, computer mice, bluetooth speakers and universal remotes, saw its share price more than double over 2020, with the good times continuing over the first half of this year. But the stock has fallen on hard times of late, dropping 37 per cent since early June.

Appealing to the company’s significant runway ahead, however, Driscoll named LOGI one of his Top Picks for the next 12 months while speaking on a BNN Bloomberg segment on Friday.

“We’ve spoken about companies that have fallen more than 20 per cent from their highs despite the fact that the revenue growth and profit growth is there. The reason [Logitech] has fallen as much as it has from its high price of 124 Swiss francs to where it is at 82 is simply because of the COVID variant lockdowns,” Driscoll said.

“You’re not getting people out there in the gaming industry having competitions and people showing up at movie theatres to watch it,” said Driscoll, President and CEO of Liberty International Investment Management. 

Driscoll said Logitech’s future looks as bright as the glare off a gamer’s screen, as the video gaming industry keeps growing by leaps and bounds.

“This company makes computer mice and the trackballs, game controllers, keyboards, video cameras and multimedia speakers. So, the long term outlook for the company is very strong because, again, video gaming is going to be a thing of the future,” he said.

“The stock trades at 13x earnings so it’s very cheap right now. Dividends have been rising by ten per cent a year and free cash flow yields are around ten per cent relative to where bond yields are. And then when we look at the return on capital of 46 per cent versus the cost of capital at eight per cent it certainly gives Logitech a great opportunity to raise the dividends and innovate and to spend on research and development for the future,” he said.

“So, I just think where we are at it’s very cheap stock,” Driscoll said.

Ahead of Logitech’s second quarter fiscal 2022 financials due on October 25, the company’s reported a bang-up fiscal first in July, showing sales up 66 per cent year-over-year to $1.31 billion and non-GAAP operating income up 100 per cent to $235 million or $1.22 per share. 

At the same time, management confirmed its fiscal 2022 outlook of flat sales growth, plus or minus five per cent, while still calling for net income to hit between $800 and $850 million. 

“We’ve started strong in Fiscal Year 2022, with Q1 sales up 58 per cent in constant currency and profits doubling versus last year,” said Bracken Darrell, Logitech president and CEO, in a July 26 press release. “Our key categories grew high double digits. This performance demonstrates the strength of our capabilities, excellent operational execution, and ability to capitalize on long-term trends, like gaming, streaming and creating, hybrid work and video everywhere.”

With Logitech’s fiscal fourth quarter results in Aprial, the company announced both an increase to its share buyback program bringing it to up to $1 billion and a dividend increase of ten per cent, saying the two moves show the company’s “continued commitment to consistently return cash to shareholders.”

Logitech showed its climate conscious bona fides last month by saying the company’s operations will be carbon neutral by the end of this year. As well, Logitech said it would be accelerating its climate strategy across all its activities and products in an aim to reach net zero by 2030, which would mean not relying on carbon offsets to reach on balance a neutral carbon position but to have all of its operations effectively produce little to no carbon output.

“Our purpose is to enable all people to fulfill their passions and to do it in a way that’s good for the planet, and to be good for the planet we’ve got to be climate positive or making the climate better, not making it a little less worse. That’s why we’re committing to [net zero] 2030,” said Darrell in a CNBC interview on September 9. 

“We’re in a very small number of companies that have gotten that aggressive, so it’s deeply in the company but it’s shared by virtually everybody in our company,” he said. “There’s such enthusiasm for this initiative, we’ve gotten great feedback from investors, and I think an increasing number of customers are excited about it too.”