4 Computer Peripheral Stocks to Watch in a Challenging Industry
The Zacks Computer - Peripheral Equipment industry is showing signs of struggle as the demand for remote work and learning is declining, with vaccine availability helping economies to open up. As people stay less at home, the time spent on playing video games is also expected to drop, thereby hurting the demand for gaming accessories.
Nevertheless, Logitech LOGI, Mercury Systems MRCY, Stratasys SSYS and Immersion IMMR are a few industry participants well poised to benefit from the growing demand for professional gaming accessories, personal computer (PC) peripherals, touchscreen devices, smart glasses and RFID (Radio Frequency Identification) solutions. Moreover, the solid demand for 3D-printed health equipment like face shields, nasal swabs and ventilator parts has been a tailwind.
Industry Description
The Zacks Computer - Peripheral Equipment industry comprises companies offering computer input, output and storage devices. These include keyboards, mouse, LCD panels, smart glass, analog to digital imaging solutions, touch sensors, 3D printers & additive manufacturing, and transaction-based printer products, among others. Moreover, video gaming accessories, including gaming mouse, wired gaming headset, in-ear gaming headphone and controllers for Xbox One and Playstation are offered by these companies. Notably, the highly competitive nature of the industry is encouraging participants to come up with innovative and relevant products to meet the current demand trend. This is strengthening their product portfolios.
3 Trends Shaping the Future of the Computer- Peripheral Equipment Industry
Shift in Consumer Preference a Key Catalyst: The gradual shift in consumer preference from mobile gaming to a more professional gaming experience is a major growth driver. The launch of advanced gaming devices and the rising popularity of e-sports leagues are likely to boost the prospects. Markedly, e-sports will also likely continue aiding the total addressable market in the gaming peripherals industry. In addition, the 3D printing market presents a favorable long-term investment opportunity, as a large number of engineers, designers, architects and entrepreneurs are resorting to 3D solutions for primary designing and product modeling. Also, the coronavirus outbreak is resulting in massive demand for gaming equipment and 3D-printed medical equipment, which is a major driving force for this industry during these trying times.
Expanding Global Footprint: The expansion of the total addressable market bodes well for the industry participants. Deepening penetration into price-sensitive regions like the Asia Pacific and the Middle East & Africa through low-cost quality products boosts growth prospects.
Evolving COVID-19 Situation to Hurt Near-Term Growth: The computer peripheral equipment industry is facing operational challenges posed by the coronavirus pandemic. Resurgence in COVID-19 cases due to the emergence of the Omicron variant is expected to cause some manufacturing, port and logistics disruptions in the near term. Moreover, the companies in the space are facing industry-wide component supply constraints, which are hurting their sales.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Computer-Peripheral Equipment industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #155, which places it in the bottom 39% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates dim near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic on this group’s earnings growth potential. The industry’s earnings estimate for 2022 has moved down by 37.9% to $1.57 over the past year.
Industry Fiscal 2022 EPS Estimate Revision
Despite the gloomy industry outlook, a few stocks are worth watching in the market. But before we present the top industry picks, it is worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Underperforms the S&P 500 and the Sector
The Zacks Computer-Peripheral Equipment industry has underperformed the S&P 500 composite and the broader Zacks Computer and Technology sector in the trailing 12 months.
The industry has lost 34.3% during this period, while the S&P 500 has gained 12.2%. The broader sector has declined 2.4% over the same time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month P/S, which is a commonly-used multiple for valuing computer peripheral stocks, we see that the industry is currently trading at 0.59X compared with the S&P 500’s 4.94X and the Zacks Computer and Technology sector’s 4.87X.
Over the last five years, the industry has traded as high as 1.22X, as low as 0.44X and at the median of 0.57X, as the chart below shows.
Trailing 12-Month Price-to-Sales (P/S) Ratio
4 Stocks to Watch
Logitech - This Switzerland-based company is benefiting from the strong momentum in the video collaboration, gaming, and creativity & productivity businesses. It has been able to bank on its software and go-to-market capabilities to drive market-share gains and growth.
Apart from this, the thriving cloud-based video conferencing services will continue to be the key catalyst. The stay-at-home orders due to the coronavirus outbreak are also boosting sales. The rising adoption of new mobile platforms in both mature and emerging markets is fueling demand for Logitech’s peripherals and accessories. Further, partnerships with cloud providers like Zoom Video, Microsoft and Google are major positives for this Zacks Rank #3 (Hold) company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for its fiscal 2022 earnings has been revised upward by 14 cents to $4.60 per share over the past 30 days. Logitech’s shares have declined 33.7% in the past year.
Price and Consensus: LOGI
Mercury Systems: It is gaining from the modernization in radar, electronic warfare and C4I, opening up new opportunities in weapon systems, space, avionics processing, and mission computing, and embedded rugged service for the company. The company’s domain expertise in analog and digital integration has helped it build a solid long-term relationship with the prime defense contractors.
Additionally, Mercury Systems’ embedded computing servers, including the suite of EnsembleSeries blades, have delivered processing solutions with long lifecycles, high performance, environmental resiliency, interoperability and SWaP optimization for 35 years. Also, the fast-growing usage of parallel processing and high-performance computing is prompting companies like Mercury Systems to capitalize on artificial intelligence for solving real-world problems across industries.
This Andover, MA-based company carries a Zacks Rank of 3, at present. The Zacks Consensus Estimate for the fiscal 2022 earnings has been revised downward by a penny in the last seven days to $2.51 per share. MRCY stock has plunged 29.8% in the past 12 months.
Price and Consensus: MRCY
Stratasys: This Eden Prairie, MN-based company is benefiting from the increase in demand for 3D printed medical equipment. Notably, the adoption of PolyJet and Fused Deposition Modeling printers has been encouraging. Markedly, Stratasys’ machines facilitate prototyping within a few hours, which reduce the development time and upfront costs. Also, the company’s spool-based system compares favorably with the UV polymer systems. For these reasons, we think the company maintains a leading position in rapid prototyping (RP) machines. Apart from these, the company’s RedEye rapid product manufacturing is the world's largest RP and part-building service.
Furthermore, this Zacks Rank #3 3D printing company has made strategic partnerships with the likes of Schneider Electric, Boeing, Ford Motor, Siemens, Boom Supersonic and United Launch Alliance in recent times. These collaborations are aimed at introducing advanced 3D printing technologies to the aerospace and automotive industries. Additionally, the company’s cost-control initiatives are anticipated to reflect positively on the bottom line.
The consensus mark for 2022 earnings has been stable at 6 cents per share for the past 60 days. The stock has depreciated 48.1% in a year’s time.
Price and Consensus: SSYS
Immersion – This San Jose, CA-based hardware and software technology provider enables users to interact with computers using the sense of touch. Immersion’s patented technologies, branded TouchSense, enable devices such as mouse, joysticks, knobs and medical simulation products to deliver tactile sensations that correspond to on-screen events.
#3 Ranked Immersion is a small company with a market cap of around $159 million. But it is seeing some very strong growth because of its innovative technology and new customer wins. The company is focusing on four application areas — computing and entertainment, medical simulation, professional and industrial, and three-dimensional capture and interaction.
In the first nine months of 2021, Immersion’s revenues increased approximately 30% to $25 million from $19.3 million reported for the first three quarters of 2020. Adjusted earnings per share for the first nine months of 2021 increased to 48 cents from 8 cents in the year-ago period.
The Zacks Consensus Estimate for 2021 and 2022 earnings per share has been stable at 62 cents and 71 cents, respectively, for the past 60 days. The stock has plunged 67.9% in the past year.
Price and Consensus: IMMR
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Logitech International S.A. (LOGI) : Free Stock Analysis Report
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