The Zacks Computer - Peripheral Equipment industry has suffered immensely due to coronavirus-led supply chain disruptions and destabilization of international trade. Lockdowns and shelter-in-place guidelines aimed at flattening the infection curve have caused significant delays in production. Moreover, uncertain macro-economic conditions and job loss have hurt consumer appetite for computer peripherals.
Nevertheless, Logitech (LOGI - Free Report) , Stratasys (SSYS - Free Report) and Immersion (IMMR - Free Report) are few industry participants well set to benefit from growing demand for professional gaming accessories, PC peripherals, touchscreen devices, smart glasses and RFID solutions. Moreover, solid demand for 3D-printed health equipment like face shields, nasal swabs and ventilator parts has been a tailwind.
The Zacks Computer - Peripheral Equipment industry comprises companies offering computer input, output and storage devices. These include keyboards, mouse, LCD panels, smart glass, analog to digital imaging solutions, touch sensors, 3D printers & additive manufacturing and transaction-based printer products, among others.
Notably, the highly competitive nature of the industry is encouraging the participants to come up with innovative and relevant products to meet the current demand trend. This is strengthening their product portfolios.
3 Trends Shaping the Future of Computer- Peripheral Equipment Industry
Coronavirus Hurts Production and Demand: Coronavirus-induced lockdown and shelter-in-place guidelines have caused massive delays in the production of electronics. Further, the pandemic disrupted the supply chain, thereby hurting production. Additionally, demand for computer peripherals has dropped due to an uncertain macro environment and rising unemployment. Moreover, the completion of Microsoft (MSFT - Free Report) Windows 10 replacement cycle is expected to keep denting demand for computer peripherals as the industry is dependent on the PC market to some extent.
Shift in Consumer Preference a Key Catalyst: The gradual shift in consumer preference from mobile gaming to a more professional gaming experience is a major growth driver. Launch of advanced gaming devices and growing popularity of e-sports leagues are expected to boost prospects. Markedly, e-sports is also likely to continue driving the total addressable market in the gaming peripherals industry. Moreover, the 3D printing market presents a favorable long-term investment opportunity as a large number of engineers, designers, architects and entrepreneurs are resorting to 3D solutions for primary designing and product modeling. Also, the coronavirus outbreak is resulting in massive demand for gaming equipment and 3D-printed medical equipment, which is a major driving force for this industry during these trying times.
Expanding Global Footprint: Expanding the total addressable market bodes well for the industry participants. Improving penetration into price-sensitive regions like the Asia Pacific and the Middle East & Africa through low-cost quality products enhances prospects. However, uncertainty surrounding the U.S.-China trade war makes us anxious about the near-term prospects of the industry.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Computer-Peripheral Equipment industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #127, which places it at the bottom 49% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic on this group’s earnings growth potential. Since Jan 31, the industry’s 2020 earnings estimates have widened from a loss of 14 cents to 34 cents.
Despite a gloomy industry outlook, a few stocks have the potential to outperform the market based on a strong earnings outlook. But before we present the top industry picks, it is worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Lags Sector, Outperforms S&P 500
The Zacks Computer-Peripheral Equipment industry has outperformed the S&P 500 composite but lagged the broader Zacks Computer and Technology sector in the past year.
The industry has risen 20.4% over this period compared with the S&P 500’s increase of 11.6% and the broader sector’s rally of 30.6%.
One Year Price Performance
Industry’s Current Valuation
On the basis of the trailing 12-month P/S, which is a commonly used multiple for valuing computer peripheral stocks, we see that the industry is currently trading at 0.73X compared with the S&P 500’s 4.08X and the Zacks Computer and Technology sector’s 4.16X.
Over the last five years, the industry has traded as high as 6.93X, as low as 0.51X and at the median of 5.01X, as the chart below shows.
Trailing 12-Month Price-to-Sales (P/S) Ratio
3 Computer Peripheral Stocks to Keep a Close Eye on
Logitech: This Switzerland-based company is benefiting from strong momentum in video collaboration, gaming, and creativity & productivity businesses. It has been able to leverage its software and go-to-market capabilities to drive market share gains and growth.
Moreover, the thriving cloud-based video conferencing services will continue to be the key catalyst. Stay-at-home orders due to the coronavirus outbreak are boosting sales. Rising adoption of new mobile platforms in both mature and emerging markets is fueling demand for Logitech’s peripherals and accessories. Further, partnerships with cloud providers like Zoom Video (ZM - Free Report) , Microsoft and Google are major positive for this Zacks Rank #2 (Buy) company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for its fiscal 2021 earnings stayed at $2.50 over the past 30 days. Logitech’s shares are up 47.5% year to date.
Price and Consensus : LOGI
Immersion: This San Jose, CA-based company develops hardware and software technologies that enable users to interact with computers using the sense of touch. The company’s patented technologies, which are branded TouchSense, enable devices such as mouse, joysticks, knobs and medical simulation products to deliver tactile sensations that correspond to on-screen events.
The Zacks Consensus Estimate for its 2020 earnings has been stable at 24 cents per share over the past 30 days for this Zacks Rank #2 stock. Immersion’s shares have gained 14.2% year to date.
Price and Consensus : IMMR
Stratasys: This Eden Prairie, MN-based company is benefiting from an increase in demand for 3D printed medical equipment. Notably, the adoption of PolyJet and FDM printers has been strong. Markedly, Stratasys’ machines facilitate prototyping within a few hours which reduces development time and upfront costs. Also, the company’s spool-based system compares favorably with UV polymer systems. For these reasons, we think the company maintains a leading position in RP machines. Moreover, the company’s RedEye RPM is the world's largest RP and part-building service.
Further, this Zacks Rank #3 (Hold) 3D printing company has made strategic partnerships with the likes of Schneider Electric, Boeing, Ford Motor, Siemens, Boom Supersonic and United Launch Alliance in recent times. The collaborations are aimed at introducing advanced 3D printing technologies to the aerospace and automotive industries. Additionally, the company’s cost-control initiatives are expected to reflect positively on the bottom line.
The consensus mark for 2020 loss has been stable at 23 cents per share over the past 30 days. The stock has lost 29.6% year to date.
Price and Consensus : SSYS