Tech Stocks Can Be Resilient
Technology has always been considered an exciting, albeit somewhat risky field for investors. Over the years, there was never a shortage of tech stocks with soaring share prices. What people did not quite expect, though, is how resilient tech companies can be under a worldwide pandemic.
You see, the outbreak of COVID-19 has resulted in a massive slowdown in businesses around the world. In some regions, non-essential businesses were ordered to shut down for months. Due to the financial stress, some companies may not be able to open their doors again.
The stock market has felt the impact, too. In the U.S., the market crashed from February to March. And while a recovery has been underway, not every sector is the same. To give you an idea, the tech-laden Nasdaq Composite is actually up 17.5% year-to-date, while the S&P 500 and the Dow Jones Industrial Average are just about breaking even, as of this writing.
The most notable tech winners in the stay-at-home period tend to be found in services. For instance, e-commerce giant Amazon.com, Inc. (NASDAQ:AMZN) has surged 65% since the beginning of this year, video streaming platform Netflix Inc (NASDAQ:NFLX) has climbed 49%, and remote conferencing software company Zoom Video Communications Inc (NASDAQ:ZM) has skyrocketed 278%.
But the hardware business can be lucrative in the period too, as Logitech International SA (NASDAQ:LOGI) has demonstrated.
Logitech International SA
Although the name Logitech is derived from logiciel, the French word for software, the company is actually known for its physical products. In fact, Logitech is one of the world’s leading manufacturers of computer peripherals, such as mice, keyboards, webcams, speakers, and tablet accessories.
Now, you can probably see where this is going. When people have to work from home, learn from home, and play from home, they often do so by using their computers and tablets. And that has resulted in strong demand for Logitech’s computer peripheral products.
To give you an idea, in the three months ended June 30, net sales from Logitech’s “PC Webcam” segment skyrocketed 116% year-over-year, while net sales from the company’s “Video Collaboration” segment enjoyed a 77% increase. (Source: “Q1 Fiscal Year 2021 Financial Results,” Logitech International SA, July 20, 2020.)
Net sales from Logitech’s “Keyboards & Combos,” “Tablet & Accessories,” “Audio & Wearables,” and “Gaming” segments also reported double-digit-percentage year-over-year growth.
For the whole company, sales totaled $792.0 million for the June quarter, representing a 23% year-over-year increase. On a constant-currency basis, that number would have been up 25%.
Keep in mind that this reporting period was supposed to be the toughest one for many companies in a long time. Before this earnings season kicked off, analysts were projecting a 10.8% blended year-over-year decline in revenue for S&P 500 companies. (Source: “Earnings Insight,” FactSet Research Systems Inc, July 10, 2020.)
It’s not just the sales figures that have made Logitech stand out. For the quarter, the company’s non-generally accepted accounting principles (GAAP) operating income surged 75% year-over-year to $117.0 million. Operating cash flow more than tripled year-over-year to $119.0 million. (Source: “Logitech’s Growth Accelerates, Q1 Revenue Up 23%,” Logitech International SA, July 21, 2020.)
Adjusted earnings came in at $0.64 per share, representing a substantial improvement from the $0.39 per share earned in the year-ago period.
And that’s not all: the outlook is also brighter than before.
Previously, management was expecting mid-single-digit constant-currency sales growth and non-GAAP operating income of $380.0 to $400.0 million for the company’s fiscal-year 2021 (which will end on March 31, 2021).
In the company’s latest earnings report, however, they project 10% to 13% constant-currency sales growth and non-GAAP operating income of $410.0 to $425.0 million for the fiscal year.
All that is good news for Logitech stock investors.
Logitech International SA (NASDAQ:LOGI) Stock
Chart courtesy of StockCharts.com
Keep in mind that, in light of the uncertainties related to the COVID-19 pandemic, a lot of companies have withdrawn their guidance. And yet, Logitech International SA is on track to have a better year than what it was anticipating.
Investors have noticed the tech company’s strong business performance and have rewarded it with a higher share price. Year-to-date, Logitech stock has shot up 47%. If the company’s products continue to sell well, even better returns are likely on the way for LOGI stock investors.