I've been watching Logitech for some time now. Continually monitoring its price and looking at the overall market, I have lowered my buy-in price progressively over time. Recent weakness in the market has pulled Logitech below the $25 mark, which I truly can't justify lowering any further. While I would never claim to predict a "bottom" for anything, I do believe that the current price makes for a great value.
Logitech will no doubt be affected by the recession that we are currently in (or the recession that is coming soon...or that isn't a recession at all, depending on who you talk to). Overall earnings growth over the past several years has chugged along at upwards of 25% annually. This growth rate will no doubt be softened by the economy in the coming years. If we were to look at the sales growth and use that to predict a possible outcome over the next 5 years, we would see a year over year sales growth of nearly 18% over the past few years. The question is, how much should we moderate our expectations. I'm mostly in agreement with the bulk of the analysts, who see at least 15% annual growth in earnings over the coming 5 years. At that rate of growth and the current price, Logitech exhibits solid value to an investor.
Logitech has several very good things going for it right now. Growth in non-US markets is very strong, which I always like to see but is particularly important in this market environment. They have a well-defined initiative to grow their brand in emerging markets such as Eastern Europe, as well as other non-US markets where they already have a strong presence such as Asia. This will help limit exposure to a volatile and softening US economy. Logitech has maintained and continually increased its profit margin year over year for the last 8 to 10 years, as well as worked to reduce and eliminate its long-term debt. These two important factors are indicative of sound management and will further insulate the company from troubled times and will serve as a competitive advantage moving forward.
Finally, Logitech's business is easy for anyone to understand, which is absolutely key in evaluating investment opportunities. They naturally continue to be one of the most significant players in computer peripherals, which is perhaps not as exciting in the US as it is in the emerging markets. More interestingly they have positioned themselves to be the glue that holds the future of home entertainment together. Sales of their intelligent remotes for home entertainment have absolutely soared over the past several months. Whatever happens with the format wars of the future, one thing is certain - components of home entertainment will continually become more complex as consumer demand for a personal and immersive experience continues to grow. I particularly like the sweet-spot the Logitech is in right now as the point of unification and simplification for home entertainment through their home control and automation offerings.
Logitech's demonstrated ability to create intelligently designed products will continue to drive consumer demand and their positioning across the home computer and home entertainment markets will allow them to continue to broaden the market for their products in the US and abroad.
$24.88 (03/07/08)
