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Is Logitech A Buy After Income Triples?

Over the last couple months, I’ve shown you stocks to avoid…

Stocks to consider buying…

And some of the best stocks related to the coming Internet of Things…  Which you can find linked further below.

All these recommendations are to help you either avoid pain and terrible stocks.  Or to help you find potentially great stocks to invest in during this pandemic.

If you do both well, it helps you earn higher than average investment returns and build wealth.

Because the fewer investment losses you have the more capital you keep. And the more capital you keep the faster you compound your money.

Today I answer Is Logitech A Buy After Income Triples to help you figure out if you should buy this tech company or not for your retirement portfolio.

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Logitech (LOGI) manufactures and sells PC and mobile accessories like keyboards, mouses, mounts, stands, remotes, speakers, and more.

And with more people working from home than ever before its results are skyrocketing.  I’ll get to that in a bit.

It’s based in Lausanne Switzerland.  It has a $19.76 billion market cap. And it pays a 0.8% dividend which is reason #1 to consider buying its stock.

Logitech’s 0.8% Dividend

Since 2014 when it began paying a dividend, Logitech’s paid out a total of $3.65 per share in dividends.

At today’s share count of 171 million, that’s equal to $624.2 million paid out to shareholders in that time.

Plus, it grew its dividend from $0.23 per share in 2014 to $0.86 per share now which is a total growth rate of 274% since 2014.

These regular payments help you earn more money for your retirement.  And they’ll help you in any kind of prolonged economic issues like we’re dealing with today.

It can do this because it earns large profits.  Which is reason #2 to consider buying Logitech’s stock.

Logitech Earns Large Profits

Over the last decade it earned an average operating income margin of 6.5% per year.  

I look for anything above 10% consistently.

But this also isn’t the full story.

Early in the decade Logitech was struggling to figure out its path as more companies entered the computer and mobile accessory industry.

This caused its revenue to fall from $2.4 billion in 2011 to $2 billion in 2016.  Which also caused low yearly operating margins between 0.4% and 7.3%.

Since then though, Logitech’s found its niche by creating higher quality products that it can charge more for.

This increased revenues from $2 billion in 2016 to $4.4 billion now in 2021.

And it also helped improve operating margins from a low of 0.4% in 2013 to now 20.7% in 2021 which is fantastic.

I look for operating margins above 10% on a consistent basis.

This same pattern played out with its free cash flow production as well.

From 2011 to 2016 its FCF/Sales margin was 3.3% to 7.5%.  This is okay.  But from 2017 to today its lowest FCF/Sales margin was 9.7%.  And now in 2021 with everyone working from home its 22%.

These are spectacular.

I call this the “Cash Machine” metric.

I look for anything above 5% on a consistent basis for the same reasons as I look for high operating profit margins above.  If a company surpasses both thresholds it makes it a great operating business that is both safe and ultra-valuable.

Things improved so much in the last year for Logitech with more people working at home that revenue rose 85% in the year-to-year quarterly period to $1.67 billion.

Operating income grew 248% to $448 million.

And cash flow from operations grew 193% to $530 million.

All in one quarter.

And with more people working from home likely forever now, this bodes well for Logitech going forward.

Logitech surpasses both ultra-important metrics since 2017 when it figured out its niche… This not only means Logitech is a world class business operation.  But it also adds an enormous margin of safety to potentially buying its stock.

Another benefit… These profits also allow it to have low debt levels though.

Logitech Has Almost ZERO Debt

As of this writing it has $1.4 billion in cash compared to $40 million in debt.

As a percentage of its balance sheet, total liabilities make up only 44.9%.

Debt only makes up less than 1% of its market cap.

And its debt-to-equity ratio is 0.01.

These are all well below what I look for in an investment, which adds a huge margin of safety to potentially buying Logitech stock.

But what about its valuation?  Is it cheap enough to buy? 

Logitech IS NOT Cheap

With the markets at or near all-time highs you’d expect a great stock like Logitech to be selling at an enormous valuation.

Its not… But it’s still overvalued.

Its P/E is 21.1.

Its P/CF is 19.2.

Its forward P/E is 24.

And its EV/EBIT is 19.8.

On all three metrics at the top, I look to buy investments below 20 to consider them undervalued.

And on EV/EBIT I look to buy stocks below 8.

These show that Logitech is overvalued right now.

And this means owning its stock gives you no margin of safety in investing terminology.

When you invest in stocks that have a margin of safety it makes the investment safer.  And it also means you should expect to earn higher returns owning it in the coming years.

The inverse of this is also true…

When you invest in a stock without a margin of safety it makes the investment riskier.  And it also means you should expect to earn less owning it going forward.

Because Logitech is overvalued, it makes owning its stock enormously risky.  And for this reason, I recommend you avoid buying it for now.

Conclusion

If you’re looking for a solid, safe, dividend paying, stable, and enormously profitable investment to buy consider Logitech… But only when its cheaper.

Use the following links to some of our recent articles to learn other ways to protect yourself and your investments in these uncertain times.

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.

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