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Why You Should Be Buying This Cheap Growth Stock Before Earnings

Shares of computer peripherals manufacturer Logitech International (NASDAQ: LOGI) have outpaced the broader market's gains so far this year despite pulling back substantially over the past month, and it may not be long before the stock starts moving north once again.

LOGI data by YCharts.

Logitech stock's recent drop seems a tad surprising in the absence of any important company-related announcements that could have altered its fortunes. As such, savvy investors should consider taking advantage of Logitech's recent slide. The company is set to release its fiscal 2022 first-quarter results on July 27, which could help arrest the recent dip and send the stock higher. Let's see why that may be the case.

Image source: Getty Images.

Logitech is on track to deliver solid results once again

Logitech's revenue and earnings growth have taken off since the beginning of 2020. The coronavirus pandemic led to an increase in demand for Logitech products that come in handy while working or learning from home. Additionally, strong demand for video game gear and the rising adoption of esports have been powering Logitech's sales and earnings growth for over a year now.

LOGI Revenue (TTM) data by YCharts.

More importantly, Logitech's outlook suggests that its pandemic-driven momentum is here to stay thanks to secular growth trends. Wall Street expects Logitech to deliver $0.87 in earnings per share this quarter on revenue of $1.06 billion. That would be a big improvement over the prior-year period's revenue of $792 million and earnings of $0.64 per share.

The fact that Logitech is expected to record more than 33% year-over-year revenue growth and a 36% improvement in earnings for the three months ending June 30, 2021, indicates that its products continue to remain in solid demand in a post-coronavirus scenario. More importantly, analysts expect Logitech's earnings growth to accelerate over the next five years to a compound annual rate of 30%. That's better than the 19% annual earnings growth Logitech has clocked over the last five years.

The improved outlook isn't surprising given the catalysts Logitech is sitting on.

Secular opportunities to drive long-term growth

Logitech listed four secular growth trends at its investor day held in March this year: the growth of remote work, the transition from audio toward video calls, video gaming as a spectator sport, and the spike in streaming and content creation.

Logitech expects these trends to create new opportunities. For instance, workspaces will have to be upgraded as workers move to remote locations or to a hybrid model that involves working both remotely and from the office. As a result, employees/organizations can be expected to invest more money into peripherals such as keyboards, mice, tablets, and speakers, among other items.

This would spark a refresh cycle and increase demand for Logitech's products, such as pointing devices, keyboards, and tablet accessories. Meanwhile, the shift to video calls means that demand for video collaboration equipment and webcams is likely to increase. Third-party research estimates the webcam market will grow at an annual pace of 16.6% through 2026 and hit $24.6 billion in value. The videoconferencing market is also expected to clock double-digit growth over the long run.

All of this bodes well for Logitech, as video collaboration equipment and PC webcams produced more than 28% of its revenue last year.

The video gaming market is also driving the need for upgraded equipment, thanks to the growing adoption of esports. According to third-party estimates, the global esports market could clock 15% annual growth through 2026. This would encourage gamers to invest more money into the latest equipment, unlocking another solid opportunity for Logitech.

And thanks to catalysts such as esports, online education, and other forms of content creation, the video-streaming market is anticipated to grow at 21% a year through 2028, according to Grand View Research. So it is safe to say that Logitech is sitting on a bunch of impressive growth drivers that could help the company deliver eye-popping results in the long run.

As such, investors looking to add a growth stock to their portfolio shouldn't delay further. Logitech's recent pullback has made the stock cheap, with its price-to-sales ratio of 3.96 falling below last year's average multiple of 4.5. The earnings multiple of 22 is also below the 2020 average of 24.6. A strong earnings report could kick-start Logitech stock's rally, which is why now looks like a good time to go long.

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool recommends Logitech International. The Motley Fool has a disclosure policy.


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