Logitech International SA (LOGN:SWX) Stock: Analysis

Logitech shares are traded on the Swiss stock exchange under the ticker "LOGN". The company was founded in 1981 in the canton of Vaud, in an old farm owned by the in-laws of Daniel Borel, one of the three founders. It specializes in the production of computer peripherals and has nearly 9,000 employees spread across the world.

Logitech stock valuation

On the surface, LOGN seems particularly cheap for a tech stock. The price has been plummeting for the past six months and the PE is trading at less than 15. I understand why some readers voted en masse for this company. However, beware of the exceptional effect induced by the Wuhan virus, with profits having almost doubled from one financial year to the next. We must remain cautious about the duration of this phenomenon, which should (we hope) subside over time. It could even be that in the medium/long term the consequences will be rather negative due to an increase in transport and raw material costs, as well as an increase in inventories in the event of a rapid drop in demand.

Let’s see what this gives in terms of ratios:

As can be seen, when we take into account the average results, the title even appears quite expensive. It is also when we compare it to the assets.

Logitech Stock Dividend Yield

As with many tech companies, LOGN's dividend is modest, with only 1,06%. It should be noted, however, that it is growing at an appreciable average rate of 8,83% per year (last five years). It should also be noted that it is particularly well covered by the company's results, not only based on the latest result, but also those of the last five years:

Logitech therefore has a certain margin to continue to pay and grow its dividend in the future.

Results, balance sheet and performance of the action

Just like the dividend, the profit, cash reserves and asset value of the Vaud company are increasing over the long term, which proves the solidity of its business model. Liquidity is more than sufficient with a current ratio of 1.88 (slightly down) and a quick ratio of 1.49. No worries about paying the bills as a result.

Logitech is clearly managing to create value for its shareholders and this is reflected in the share price which has increased tenfold over the last ten years! No less. And this despite the 35% drop over the last six months. It is even much better than the Nasdaq, where the stock is also traded. Not bad for a company that was described as being at a standstill ten years ago, due to the arrival of tablets and smartphones:

"Logitech has done worse than a market that was itself bad. This must never happen" - Le Temps

This shows that some growth companies, in buy & hold, can be particularly lucrative for their holders. You just have to time them right and be able to absorb very large price variations in the meantime.

Profitability and profitability

Among the reasons for these rather exceptional results, we must highlight Logitech's profitability and profitability, which are both uncommon:

Profitability

Profitability

Even though these results, partly due to the pandemic, need to be put into perspective, there is still a lot of money coming into Logitech's coffers! The average gross and net margins show us that this is not just a flash in the pan.

Debt

How can I tell you? According to Financial Times, the debt is zero. Not believing my eyes, I checked on the Wall Street Journal side. The latter shows a very small debt of 12 million short term + 20 million long term (which represents only 0.48% of the value of the assets). This gives us a total of 32 million in total. In other words, it is zero since it represents 0.01 times the equity. If it means anything, Logitech would be able to amortize this amount in the space of a month, by using its free cash flow.

Shareholder Return on Logitech Stock

Logitech tends to issue a few additional shares on a regular basis, which somewhat dilutes shareholder equity. Even if the quantity remains modest, it is quite a curious method, since the Vaud-based company clearly does not need cash. This has a slight negative effect of -0.74% per year on average on shareholder returns. However, the overall return for owners, including dividends, net debt repayment and share capital increase, remains positive, with an annual average over the last five years of 1.82%. To do this, Logitech has only used half of its free cash flow, which means that it still has some left over to reward its shareholders in the future.

Franchise

Logitech operates in a very competitive environment. Profitability obviously fuels the appetite of competitors. The technical barriers are not huge either. Of course, you don't improvise as a peripheral producer overnight, but it's still more obvious than entering the market of semiconductors. A priori therefore, nothing suggests that "Logi" has the characteristics of a franchise.

However, if we look at the numbers, we can wonder. We have seen that profitability and profitability are both remarkable. Debt is non-existent. We can also note the capital expenditures which are very modest (10.7% of profits on average only). Logitech also has the capacity to constantly reinvent itself. In 2011, Guerrino De Luca, Chairman of the Board of Directors said: "We believe in the rapprochement between the business world and that of individuals. We are present on both sides and ideally placed to benefit from it". Its CEO, Bracken Darrell mentioned also that when he took over in 2012, he was convinced "that video communication would become widespread within companies with equipment in every conference room, in every office, in every lab". Their shared vision was realized in the years that followed and took a tangent with the pandemic, as did the LOGN course.

This ability to reorient itself has also been demonstrated through a policy of targeted and well-considered acquisitions, methodically increasing Logitech's goodwill. Finally, let us add that the Swiss company has built a certain reputation over time, thanks not only to its capacity for innovation, but also to the quality and reliability of its products.

Logitech therefore has many of the characteristics of a franchise. The barriers to entry are not entirely impermeable, however. It remains to be seen whether the company will still be able to plug the gaps in the future, thanks to its notable know-how.

Risks of Logitech stock

Like many tech stocks, LOGN is quite volatile, with a relative standard deviation of 34.25%. Surprisingly, however, the beta is only 0.65, showing a fairly modest sensitivity to market movements.

Piotroski's score is good, with seven out of nine possible points. This confirms Logitech's financial strength and bodes well for the future performance of the stock. Altman's score is 7.84, which is very high, placing the Vaud company in the "green" zone, where it is unlikely that Logitech will go bankrupt. We kind of suspected that...

Conclusion

I'm rarely a big fan of technology companies. I have to admit, however, that Logitech ticks a lot of boxes. The only downsides to note are its size first of all and, to go with it, the impressive number of institutions jostling for position. There are some great names: BlackRock, Credit Suisse, UBS, Vanguard, Vontobel, Norges Bank, Zurcher Kantonal Bank, JPMorgan, Goldman Sachs... It's all hot stuff.

The other negative point, in the short term at least, is the bad momentum of the last six months. Of course, it allows you to buy them at a more reasonable price, but it is possible that the decline will continue for quite some time. From a buy&hold perspective, this is not a big deal, and we have seen that in the past, this strategy has clearly paid off. However, there is no guarantee that the future will be similar. Ten years ago, Logitech was close to its death throes, today it is at the top of its game. Where will it be in a decade? No one will have fun making projections that far ahead, especially in these times.

In the end, we end up with more or less the same remarks as those made for Intel. Logitech is a very nice company, profitable, profitable, showing a nice success since its creation and with a pseudo franchise status. The company is however very exposed, its short-term momentum is unfavorable and its valuation, although more accessible, is still a little high. A stock to watch therefore.