Can Logitech Sustain Its Outstanding Momentum Amid Risks?

Investors have been buoyed by Logitech International S.A.’s (NASDAQ:LOGI) recent earnings streak, as Logitech hasn't missed estimates in the trailing 19 quarters, which is a remarkable feat. We believe the thriving cloud-based video-conferencing services, strategic product launches and complementary acquisitions will continue to be growth drivers, going forward.

Backed by impressive growth drivers, the company’s stock has had an impressive run on the bourse in the past year, having appreciated 36.1%, ahead of the industry’s average growth of 12.1%. We believe that the company’s impressive traction across markets and strong product portfolio will drive growth.

Read on to find out the key drivers for the company right now.

Factors at Play

Logitech has been able to leverage software and go-to-market capabilities to drive market share gains and growth. Logitech is focused on venturing into new businesses and in the past three years, it has grown successful businesses including Bluetooth Speakers and Video Collaboration. Moreover the company’s cloud-based video conferencing services are also among the key catalysts. The company has manufactured innovative offerings like fastest performing mouse and keyboard switches, wireless mouse with longest battery life. With a diverse product roster and excellent demand, the company is highly confident about the market traction of its offerings, going forward.

Growing adoption of new mobile platforms in both mature as well as emerging markets are fueling the demand for Logitech’s peripherals and accessories. The company’s second-quarter fiscal 2018 results were benefited by robust sales growth across Asia-Pacific, along with strong momentum in Gaming and Video Collaboration businesses. For instance, the company witnessed double-digit sales growth across most of its regions and main product categories.

Moreover, the company’s solid financial health also allows it to take up acquisitions to boost core business areas. Recently, the company completed the $85-million acquisition of Astro Gaming — a popular console gaming headset maker — in a step that will help it carve a deeper niche in the gaming peripheral market. Astro Gaming is expected to enable the company to explore the console gaming market and consequently help accelerate the long-term growth of its gaming business.

This apart, the company’s successful measures to trim infrastructure spend, which are a part of its aim of focused cost control and disciplined spending, are proving conducive to margin expansion. Further, the company has been divesting non-profit assets to reduce costs. Along with this, the company expects to focus on making selective investments to ensure disciplined cost management in the coming quarters.

Despite these positives, declining demand in the company’s most profit-maximizing products like desktops and diverse porting tools can be a headwind for it. Moreover, the company’s sales are impacted by end-user consumer demand and consequently, unanticipated shifts in consumer buying patterns can negatively affect the business.

Further, the market where the company operates is highly competitive and characterized by short product life cycles, constant new product introductions, rapidly changing technology, evolving customer demands along with aggressive promotional and pricing practices. Consequently, the need to bring in newer products in the market to survive the competition brings significant surges in R&D expenses.

Considering growth drivers and the risks that the company faces, we have a Zacks Rank #3 (Hold) on Logitech.

Stocks to Consider

Some better-ranked stocks from the same space include Axcelis Technologies, Inc. (NASDAQ:ACLS) , Control4 Corporation (NASDAQ:CTRL) and Avid Technology, Inc. (NASDAQ:AVID) . While Axcelis Technologies sports a Zacks Rank #1 (Strong Buy), Control4 and Avid Technology carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Axcelis Technologies has surpassed estimates thrice in the trailing four quarters, with an average positive earnings surprise of 25.2%.

Control4 has surpassed estimates in the trailing four quarters, with an average positive earnings surprise of 100.7%.

Avid Technology has outpaced estimates twice in the preceding four quarters, with an average earnings surprise of 18.3%.

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