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Bear of the Day: Logitech International S.A. (LOGI)

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Logitech International (LOGI - Free Report) designs, manufactures, and markets products that connect people to digital and cloud experiences. The company is a global provider of wireless mice, corded and cordless keyboards, PC webcams, as well as other accessories for mobile devices. In addition, LOGI offers portable wireless Bluetooth and Wi-Fi connected speakers, PC headsets, microphones, wireless audio wearables, and home security cameras.

LOGI’s channel network includes consumer electronics distributors, retailers, mass merchandisers, specialty stores, and online merchants. The company sells its products under the Logitech, ASTRO Gaming, Streamlabs, Blue Microphones, Ultimate Ears, and Jaybird brands. Logitech International was incorporated in 1981 and is headquartered in Lausanne, Switzerland.

The Zacks Rundown

LOGI, a Zacks Rank #5 (Strong Sell), is a component of the Zacks Computer – Peripheral Equipment industry group, which ranks in the bottom 8% out of more than 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months. Note the unfavorable characteristics for this group below:

Zacks Investment Research
Image Source: Zacks Investment Research

Candidates in the bottom tiers of industries can often be solid potential short candidates. While individual stocks have the ability to outperform even when included in a poor-performing industry group, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much tougher.

The odds are stacked against LOGI, and the stock is agreeing with this notion. LOGI experienced a climax top in November of last year and has been in a price downtrend ever since. The share price is hitting a series of 52-week lows and represents a compelling short opportunity as the market continues its volatile start to the year.

Logitech is also relatively overvalued based on the Price/Book ratio:

Zacks Investment Research
Image Source: Zacks Investment Research

Recent Earnings Misses & Deteriorating Outlook

LOGI has fallen short of estimates in two of the last four quarters. The electronics company most recently reported fiscal Q1 earnings in July of $0.74/share, missing the $0.83/share consensus EPS estimate by -10.84%. Consistently falling short of earnings estimates is a recipe for underperformance, and LOGI is no exception.

Logitech has been on the receiving end of negative earnings estimate revisions as of late. For the current quarter, analysts have decreased estimates by 17.59% in the past 60 days. The fiscal Q2 Zacks Consensus EPS Estimate is now $0.89, reflecting a -15.24% regression relative to the same quarter last year.

For the year, analysts have also revised their EPS estimates downward by 14.98% in the past 60 days. The 2022 Zacks Consensus Estimates is now $4.03, translating to negative growth of -12.96%. Falling earnings estimates are a huge red flag and need to be respected. Negative growth year-over-year is the type of trend that bears like to see.

Technical Outlook

As illustrated below, LOGI is in a sustained downtrend. Notice how the stock has plunged below both the 50-day and 200-day moving averages signaled by the blue and red lines, respectively. The stock is making a series of lower lows, with no respite from the selling in sight. Also note how both moving averages have rolled over and are sloping down – another good sign for the bears.

StockCharts
Image Source: StockCharts

While not the most accurate indicator, LOGI has also experienced what is known as a ‘death cross’, wherein the stock’s 50-day moving average crosses below its 200-day moving average. LOGI would have to make a serious move to the upside and show increasing earnings estimate revisions to warrant taking any long positions in the stock. The stock has fallen nearly 47% in the past year alone. 

Final Thoughts

A deteriorating fundamental and technical backdrop show that this stock is not set to print new highs anytime soon. The fact that LOGI is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns. A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend.

Our Zacks Style Scores depict a weakening outlook for this stock, as LOGI is rated a second worst-possible ‘D’ in our Growth category and worst-possible ‘F’ for our overall VGM score. Potential investors may want to give this stock the cold shoulder, or perhaps include it as part of a short or hedge strategy. Bulls will want to steer clear of an overvalued LOGI until the situation shows major signs of improvement.


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