LOGI: Logitech International (LOGI)

Logitech International engages in the design, manufacture, and marketing of personal interface products for personal computers and other digital platforms.

You recognize their stuff. The company’s products include Web-cameras, mice, trackballs, and keyboards for the PC; interactive gaming controllers, multimedia speakers, headsets, and headphones for the PC and for gaming consoles; headsets for mobile phones; headsets, headphones, and speakers for mobile entertainment platforms; advanced remote controls; digital writing solutions; and 3D control devices. It sells its products to both original equipment manufacturers and to a network of retail distributors and resellers, principally in Europe, North America, and Asia Pacific.

A few months ago, LOGI was recommended by Jim Cramer on Mad Money. It piqued my interest and I kept it mind. This week, The Wall Street Journal ran a SmartMoney Stock Screen focused on strong returns on equity.

The WSJ's screen said:

ROE divides a company's profits by its net worth. In doing so it shows how efficiently its managers are using the plants, equipment and other resources they've been entrusted with. A variety of factors affect ROE: brand strength, pricing power, expense control, sales volume and more. Generally speaking, companies with sizable internal returns in the form of high ROEs are more likely than not to produce generous external returns in the form of share-price gains.

In October we listed eight survivors of our Efficiency Experts screen. They've since gained 34%, more than triple the S&P 500-stock index's increase.

The screen looks for companies whose returns on equity and on invested capital are in the top 25% for their industries. Return on invested capital, or ROIC, works just like ROE except it measures earnings relative to everything a company owns and the money it has borrowed. In doing so it makes up for ROE's key weakness: ROE tends to flatter companies whose heavy debt loads have shrunk their net worth, making it look like they're generating heaps of earnings with little resources.

Our screen also looks for operating margins and debt/capital ratios that have improved vs. their five-year averages, and five-year sales and earnings growth of at least 15% apiece. The nine companies on our list met these criteria, have more than $200 million in trailing 12-month sales and trade at least 100,000 shares on an average day. As always, please remember that stock screens produce research lists, not buy lists.

Thursday's "Efficiency Experts" list included Logitech and it brought it back to my mind.



Fortunately, and unforunately - timing is everything. LOGI ended this week at $42.44 after trading as low as $37 on Tuesday, posting a 14.7% gain in three days on a great earnings report highlighted by the company's 30th consecutive quarter of double digit sales growth!

Fourth-quarter net profit rose 27 percent to $51 million, or 52 cents per share, compared with $40.2 million, or 41 cents per share. Analysts had been looking for profit of $49 million.

For the full year, the company said net income rose 21 percent to $181 million, or $1.84 per share, compared with $149 million, or $1.53 per share, in the same period a year ago.

Gross margin for the year was 32 percent, compared with 34 percent last year.

Thirteen analysts polled by Reuters had on average expected the company to report a 20-percent rise in net profit for its financial year to end-March 2006 of $179 million.

Logitech has been benefiting from increased popularity of communication over the Internet, which is boosting sales of speakers, headsets and webcams.

In addition, "operational efficiencies and successful management of our working capital resulted in a record high in a single quarter for cash flow from operations of $137 million," Guerrino De Luca, Logitech's president and chief executive officer, said in a statement.

Fourth-quarter sales rose 16 percent to $466 million, while full-year sales rose 21 percent to $1.8 billion.

Looking ahead, Logitech said it expects sales and operating income to grow 15 percent, year over year. Gross margin is expected to be at the low end of its long-term targeted range of 32 percent to 34 percent, but slightly higher than for the previous year.

This week's run up boosted LOGI's P/E from 18 to 24.5. The company's 52wk high is $51.41.

It may not be the most opportune time to buy LOGI...but, feeling as good as I do about the company's future prospects (and strong consistent historical financial performance), this may be a great one to buy on some future pullbacks.


Other information:

(1) MSN's Stock Screener: LOGI is a 9 of 10

(2) Forbes article from 2000: Logitech, the little mousemaker that roars