Like the equipment the Swiss-American Logitech manufacturers, the company risks becoming peripheral to investors as a pandemic-era boom in demand fades. Third quarter sales fell 22 per cent year on year. A smaller fall in the group’s gaming-related turnover — down 16 per cent — offered small consolation. A cut to its sales outlook earlier this month had already knocked its share price hard.
The pandemic turbocharged sales of everything from webcams and headsets for homeworking to gaming gear. In the year to March 2021 group revenues jumped 76 per cent, followed by another small gain by March 2022.
That growth has now gone into reverse. Its share price which rose threefold over the pandemic has given up most of those gains.
Destocking at retailers contributed about half of the 22 per cent headline fall in sales. Business customers buying for IT departments also held back purchases. Though gaming demand did help on its consumer side, that could not offset the overall decline.
In constant currency, sales are expected to drop up to 15 per cent for the full year that ends in March. Analysts see this year as the nadir, with a slight rebound in top-line and earnings expected over the following twelve months, according to Visible Alpha.
Net earnings should eventually bounce to $509mn by March 2024. Yet even that looks a tepid recovery, only back to level of the year to March 2022. Earnings per share is currently 42 per cent below its most recent peak.
That would explain why the shares, trading at 16 times those forward estimates, are pricing in recovery at a relatively low historical multiple, a quarter below the ten year average multiple. At least Logitech has a strong balance sheet, with no debt and some $640mn of annual free cash flow forecast through March 2025.
That extra financial wriggle room should help it weather any further slowdown in demand. In the meantime, patient shareholders will hope that gaming demand can offset any further slowdown in enterprise IT spend.