Why Logitech Stock Is Down Today 6

As of 12:20 p.m. EST Monday.Logitech International (NASDAQ: LOGI)Shares fall 6% after investment bankMorgan Stanley) downgraded the computer peripherals maker's stock to Reduce (i.e., Sell), predicting that the stock will fall to $75 in the next 12 months.

According to StreetInsider.com, this is currently the lowest price target for Logitech of any bank on Wall Street.

Morgan Stanley on Logitech

Morgan Stanley analyst Erik Woodring said in a report on Monday that he's "taken a deep dive into Logitech's business" and thinks the company will only grow sales at an annualized rate of about 3% over the next three years. However, investor valuations of the stock suggest Logitech will grow as much as 10% annually over that period.

Woodring predicts that Logitech's fourth-quarter FY2024 earnings report, to be released on April 29, will convince investors that Logitech's growth prospects are limited, � leading to a �downgrade� of the stock. (In other words, he expects other analysts to follow his lead and downgrade Logitech).

Is Logitech stock a selling point?

If Woodring's judgment is correct, this is obviously not good news for Logitech stock. I mean, just look at how much Logitech's stock price fell after one analyst downgraded it. But does Logitech deserve this kind of punishment?

I'm not sure.

With a price-to-earnings ratio of 28 times, Logitech stock looks expensive on the surface. But in reality, the company generates much higher free cash flow (FCF) than its earnings metrics suggest. Over the past 12 months, the company generated $1.05 billion in free cash flow, which is a P/E ratio of less than 13, or less than half the P/E ratio, relative to its $13.5 billion market capitalization. The company also has a strong balance sheet, with $1.3 billion more cash on the books than debt, and a low dividend, yielding 1.3% at its current share price.

While Morgan Stanley may be right that Logitech won't grow as fast as some expect, all the data I've seen tells me that Logitech stock isn't overpriced and may even be cheap.

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Rich Smith does not own any of the stocks mentioned above.The Motley Fool recommends Logitech International for its position.The Motley Fool has a disclosure policy.

Why Logitech Stock Is Down Today 6% was originally published by The Motley Fool.