Back in September, Logitech (NASDAQ:LOGI) cut its full-year guidance for the third time. The new estimate came to $2.4 billion, which was $100 million lower than the prior forecast. Operating income would be about $90 million, compared to the previous forecast of $143 million.
But Logitech CEO Guerrino De Luca said this would be the final change, and he even apologized to investors. However, it was not enough to bolster confidence — LOGI shares hit a low of $7.72 after sitting around almost $20 in March.
Yet by setting the bar fairly low, Logitech actually was able to show some relative strength in the fiscal second quarter. The company last week reported a 1% increase in revenues to $589 million and earnings of $17 million, down from $41 million.
It was enough to generate optimism with investors, with Logitech stock spiking 17.3% on the news. On Monday, the stock was trading near the $10 mark. So might things be getting better? More importantly, is LOGI stock worth buying? To see, let’s take a look at the pros and cons:
Pros
Leader in peripherals. Founded in 1981, Logitech was one of the first companies to realize the huge opportunity of the PC revolution. Logitech originally developed staples like traditional keyboards and mice, but it has since expanded into other categories like gaming, wireless devices (including keyboards and mice) and home entertainment.
China story. This has been a bright spot for Logitech. The company has made substantial investments in the country, and on the earnings conference call, De Luca indicated Chinese growth should remain fairly strong in the coming quarters.
LifeSize. This product line provides for HD video used in conference calls and meetings. It compares favorably to more expensive offerings, such as from Cisco (NASDAQ:CSCO). In the latest quarter, the LifeSize segment posted a 19% growth rate.
Cons
Product issues. Despite its success with LifeSize, Logitech’s product offerings have been mostly uninspiring. A notable example is the company’s Revue set-top box for Google’s (NASDAQ:GOOG) Internet TV. It has been a dud. Perhaps the weakest part of the product mix is in the mid-range category, which is important because a key aspect of Logitech’s sales strategy is to get customers to upgrade their low-priced offerings.
Secular trends. Apple’s (NASDAQ:AAPL) iPad could have a disruptive impact on Logitech’s business. As consumers move to tablets, there might be less demand for peripherals.
Competition. It’s intense, and thus Logitech often deals with extreme pricing pressures. Some of the company’s rivals include Microsoft (NASDAQ:MSFT), Hewlett-Packard (NYSE:HPQ), Bose and Sony (NYSE:SNE).
Verdict
To get back on track, Logitech needs to start building great products again. The good news is that De Luca understands this and has been reorganizing product development teams.
However, the process will take time. And in the meantime, Logitech will need to deal with the intense competition as well as the shift towards tablets. So for investors looking at LOGI stock, the cons outweigh the pros for now.
Tom Taulli runs the InvestorPlace blog “IPOPlaybook,” a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned stocks.
