Logitech’s share price plunges 8% in pre-market stocks this morning after the company’s second quarter 2021 earnings report was released, despite its numbers close to analysts’ forecasts for the period.
For the three months ended September 30, Logitech reported record revenues of $ 1.3 billion, up 4% from the same period a year ago and 2% at constant exchange rates. Analysts had forecast sales of $ 1.24 billion for the period.
However, the company’s gross margins were down 380 basis points from Q2 2020, reaching 41.5% as supply chain disruptions increased the cost of raw materials for the company. Swiss.
At the same time, marketing and sales expenses saw a significant increase of 62.3% during the period. As a result, GAAP operating income fell 44% from a year ago to $ 179.4 million, resulting in a GAAP operating margin of 13.7% – a decrease of 1,187 percentage points. year over year basis.
Finally, net income almost halved and GAAP earnings per share was down 48% from Q2 2020 to $ 0.81 per share, while non-GAAP EPS stood at 1.01. $ 05 per share, down 3 cents from Street’s consensus estimate.
For the full year 2022, the company maintained its objective of stable revenue growth or a 5% negative or positive variation compared to the previous year.
Could this post-profit decline be an opportunity to buy Logitech stock cheaply? In this article, I’ll take a closer look at the price development and business fundamentals to sketch some plausible scenarios for the future.
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Logitech Stock Technical Analysis
Logitech’s share price has been on a downward trend since the start of the company’s 2022 fiscal year, with management guiding weak sales growth for that year in a difficult environment.
As a result, shares of the Swiss device maker have lost 7% of their value so far in 2021 and remain 36% below their 52-week high of $ 140 per share.
Three significant bearish price differentials have been left behind since July (the month in which fiscal 2022 began) and the price action ahead of today’s stock market could lead to a fourth.
While these gaps should be closed later in the future, they will continue to weigh on the stock’s short-term outlook.
Based on yesterday’s closing price, the LOGI share is trading nearly 18% below its 200-day moving average, while it has also been trading below its short-term moving averages since July. Meanwhile, the Relative Strength Index (RSI) has also remained below 50 since July. This reflects the extent of the weakness that price action has experienced since then.
However, the MACD has steadily increased as it passes above the signal line and this movement is accompanied by increasingly higher positive histogram readings.
All things considered, the outlook for LOGI stock remains bearish until the downtrend bottoms out. For now, the next horizontal support area in sight is at $ 74 per share, resulting in a total downside risk of 17% based on yesterday’s close price.
Logitech Stock – Fundamental Analysis
Logitech’s sales had grown at a slower pace before the pandemic, with early results surging 15.6% in 2016 and then increasing by 8.6% and 6.7% respectively over the next two years.
However, the health crisis accelerated the company’s growth as gamers and workers demanded top-notch computer equipment while confined to their homes.
For Logitech, the fact that sales remain stable this year is not necessarily bad. In effect, this means the company has reached a higher plateau and demand for its products is not returning to pre-pandemic levels.
However, the sharp decline in the company’s operating margins is quite worrying and so is its ability to generate free cash flow. In this regard, the company said it is making strategic investments to drive future growth by increasing its marketing and engineering spending.
The company’s cash conversion cycle has grown significantly from 19 days in Q2 2021 to 69 days in Q2 2022 due to “shipping delays and longer delivery times for some components.” In addition, inventory turnover rates almost halved during the second quarter.
As a result, the company is posting negative free cash flow of $ 225 million for the first half of fiscal 2022.
For the full year 2022, the company expects to generate free cash flow of approximately $ 335 million, which will significantly deteriorate from the $ 1.38 billion announced a year ago.
The cause of this poor performance can be considered temporary as it is linked to the global supply chain crisis. Once this issue is resolved, the company’s free cash flow generation capacity should rebound and this would have a positive impact on the valuation of the company.
With that in mind, Logitech could be a top choice for buy and hold investors who are willing to wait for supply chain constraints to be fully resolved, given that the company only trades to 11 times its free cash flow in 2021.