By Mihir Gupta (UCL), Ameya Joshi (UCL), Sukrith Kumar (UCL), and Filippo Palacino (ETH Zurich)
Stock Name: Logitech International SA
Ticker: SWX: LOGN
Sector: Information and Technology
CMP: CHF 73.30 (as on 18th October 2020
Recommendation: Buy/ Hold
Target: CHF 76.00 - CHF 78.00
Duration: 1 - 2 weeks
Logitech International S.A. is an American Swiss company specialising in computer peripherals and video conferencing services. The firm has headquarters in Lausanne (Switzerland) and Newark (California) with additional offices across Europe, Asia, Oceania, and the Americas.
The firm has acquired numerous subsidiaries since its inception 39 years ago:
3Dconnexion – a hardware and software manufacturer for CAD applications and 3D environments.
Mirial S.U.R.L – an Italian company that creates appliances and software for video conferencing.
SightSpeed – a videoconferencing company that services an instant messaging app for Windows and macOS operating systems.
Slim Devices – a Californian electronics company specialising in digital audio services.
Logitech has been in a perfect position to respond to COVID-19 and the rapid increase in the work from home culture. Despite global economies shrinking due to COVID-19, Logitech has seen 9% of growth in the 2020 Fiscal Year and record high sales of approximately $3bn, making it the fifth consecutive year the company has seen nearly double-digit growth or better.
Logitech offers a wide variety of computer peripherals and video conferencing services:
Computer Peripherals: The computer peripherals business line can be broken down into mice, keyboards, presentation remotes, conference cameras, webcams, and headsets. With big businesses like Microsoft permanently transitioning some of its workforce toward partly working from home, Logitech is uniquely poised to witness positive gains in this line of business.
Solutions Business: Logitech also has a Solutions business line which focuses on integrating its products with clients. This line of service works with companies that are transitioning toward working from home, involved in Virtual Reality, involved in education, or are healthcare focussed.
Sector and Industry Overview
Once again we have utilised the Top-Down approach in order to conduct the medium-short term industry overview. This entails commencing with the analysis of the general index that the stock is listed on and then swiftly shifting the focus towards analysing the sector, industry as well as the company’s main competitors. Cumulatively, we do this in order to highlight the real outliers as well as to garner a holistic viewpoint of the security.
Before we begin, we would like to highlight that although this report is focused on the Swiss listing of this stock, Logitech International has a global presence with operations in almost all major continents. This territorial diversification of the company is highlighted by the presence of two headquarters: one in Switzerland and the other in California, USA. This is why the stock is listed as tradable security on both the SMI Index in Switzerland as well as on the NASDAQ in the United States.
Graph 1: Rising Trendline and Cup & Handle formation for the NASDAQ Composite (Investing.com as on 18/10/2020)
Consequently, we commence our analysis by analysing the NASDAQ Composite first as we believe that the index does not only have the ability to encapsulate the general market conditions, but it is also a reliable indicator for predicting the future outlook of the IT sector in general. As it can be seen in Graph 1 - the index had a very clear as well as a steady uptrend lasting till the middle of September. In fact, until 3rd September 2020, the index had been maintaining its higher-high higher low formation to the book. However, the correction coupled with the trendline breach that followed was a result of the major pullback that the technology stocks witnessed in the middle of September. Undoubtedly though, the V-shaped recovery that was witnessed in the index is testimony to the healthy recovery as well as the bullish explosion in the IT sector, as it was among one of the major catalysts driving the sentiment of the market upwards.
Although the pullback resulted from major profit booking of the so-called ‘tech gains’, interestingly enough we believe that the aforementioned pullback followed by a slow but steady pick up in the index seems to be forming a cup-and-handle pattern which is a bullish formation that usually appears at the end of an uptrend and consists of a curved region (similar to a cup as highlighted in Graph 1) followed by a short downward swing (similar to a handle as highlighted in Graph 1). The pattern, in general, is meant to symbolize a period of consolidation complemented with short-term uncertainty especially after a long rally because of which this pattern formation usually occurs with lower than average volume(as has been the case with the NASDAQ). Those in favor may argue that indeed this argument falls in line with the real-world events as well because with only 2 weeks to go to the result of the US Presidential election result, the markets have ingrained in them an element of heightened uncertainty.
Graph 2: Rising Trendline and Cup & Handle formation for the S&P 500 Information Technology Sector (Investing.com as on 18/10/2020)
Moreover, in order to get a deeper insight, we conduct the technical analysis of the S&P 500 IT Index candlestick chart. As it can be seen in Graph 5, the picture is almost identical to the chart of NASDAQ - i.e. a long uptrend followed by a cup and handle formation. As far as the interpretation and future implications of this formation are concerned, historical analysis suggests that such periods have indeed paved paths to future uptrends. However, we ought to mention here that the handle formation is far from complete in both the NASDAQ as well as the S&P 500 IT Index because of which we believe that in the short term we may face some correction and this may indeed coincide with the US Presidential election results. However, we continue to have a bullish outlook. Having said that, we are of the opinion to closely monitor the index for the next 2-3 weeks in search of confirmation signals that may indeed set the premise for future uptake.
Graph 3: S&P 500 Sectoral Performances for the last five days (Barchart.com as on 18/10/2020)
Graph 4: S&P 500 Sectoral Performances for the last three months (Barchart.com as on 18/10/2020)
Graph 5: S&P 500 Sectoral Performances for the last six months (Barchart.com as on 18/10/2020)
Next, we move on to conduct the analysis of the Information & Technology Sector using the performance of the S&P 500 IT Index in comparison to other crucial sectors for the past 5 days, 3 months, and 6 months respectively. Subsequently, we have also analysed the performance of various industries that fall under the ambit of the IT Sector in order to get a more nuanced insight into the main drivers pushing the sector to new heights. Undoubtedly, the numbers speak for themselves. Given not only the nature of the pandemic but also the day to day challenges it imposed on both the professional as well as the personal end - the IT sector was undoubtedly amongst the torchbearers to have assisted the global community fight this challenge. Positioning itself at the core of solutions, the sector has been the second-best and best in terms of price gain for the past 6 months and 3 months respectively. Moreover, it has also been in the upper half in terms of performance for the last 5 days, thereby highlighting the continuing strength of the index.
Graph 6: Information Technology Industries Performance for the last five days (Fidelity Research as on 18/10/2020)
Graph 7: Information Technology Industries Performance for the last three months (Fidelity Research as on 18/10/2020)
Graph 8: Information Technology Industries Performance for the last one year (Fidelity Research as on 18/10/2020)
As far as the industry analysis within the wider IT sector is concerned, all three graphs (i.e. Graph 7, 8, and 9) provide us an extremely insightful overview of the major drivers. As it can be observed, although the sector at large has witnessed some correction in the past 5 days due to reasons mentioned earlier, nonetheless the Technology Hardware, Storage & Peripherals (the one that even Logitech primarily functions within ) industry has been the front runner followed by Internet and Direct Marketing Retail for the past 3 months and one year. Resultantly, given the extremely strong foundational foothold these industries have at the moment, we believe that stocks belonging to companies with strong fundamentals, credible C-Suite management and a diversified product offering within these segments of the sector at large can be multi-baggers in terms of exponential returns in the time to come.
In fact, in order to fathom the aforementioned point as well as to understand how this macro overview is reflected in the performance of particular stocks, we have also analysed the charts of Logitech International’s three main global competitors that are: Samsung Electronics, Razer, and GN Store Nord.
Graph 9: Candlestick chart of Samsung Electronics Co Ltd. (Investing.com as on 18/10/2020)
Graph 10: Candlestick chart of Razer Inc. (Investing.com as on 18/10/2020)
Graph 11: Candlestick chart of GN Store Nord (Investing.com as on 18/10/2020)
As a whole, their trend line movements as well as their price movements have been quite in sync with that of the wider industry. However, we must highlight that they have been unique in their own way. To start with, although Samsung Electronics has maintained a bullish trendline ever since it bottomed due to the pandemic in March, the stock price has witnessed quite a few sizable corrections along its trendline. In fact, as the situation currently stands, although the price action still has its higher low formation intact, it has broken its higher high formation and seems to be forming a double top which makes us skeptical about future gains in the immediate short term.
Nonetheless, what we witnessed in the case of Razer Inc.s’ share price was a textbook breakout coupled with minor corrections along an extremely bullish trendline and above-average buying volumes, making it a lucrative security to look into. In fact, the stock has witnessed a triple positive crossover (using the 9-days, 20-days, and 50-days Moving Average), that further exemplifies the bullish sentiment attached to the stock. Similarly, what we observe in the case of GN Store Nord is also a textbook uptrend with minor corrections and a succinct higher-high higher-low formation which has already approximately ensured a 150% return over the past five and a half months from the stock.
To sum up, all of the elements that have been touched upon in this segment make us believe that although in the immediate short term, the heightened level of uncertainty due to geopolitical events, the fear of a second wave of COVID, and subsequent profit booking my drive up the volatility in the wider indices and resultantly impact the sector negatively (which may translate into short term correction), the IT sector still remains a hotspot to assign a certain proportion of the capital for medium to long term returns.
Graph 12: Automated Forecasting Model for Logitech International (made in RStudio)
Graph 13: Customised Forecasting Model for Logitech International (made in RStudio)
We used the statistical programming interface RStudio to algorithmically forecast the directional movement of Logitech’s stock price. The automated model indicates a bullish run in the stock price over the next few weeks (the x-axis represents time in days, while the y-axis represents stock price), while the custom model suggests a consolidation period. However, both graphs align in showing that there is a high likelihood in the stock seeing a bullish run as depicted by the 95% confidence interval (the dark grey shaded area). Both models have a Mean Absolute Percentage Error of 1.3%, indicating a very high forecasting accuracy.
These forecasts were generated in RStudio by importing the adjusted closing prices of Logitech over the past five years. We used the ARIMA package (Autoregressive Integrated Moving Average) to determine patterns within the price action of the stock. We chose to customise the original automated model in response to certain statistical properties (if you are interested in further reading, please see the Resources page that will be coming out soon!) that were present in the time-series data which should improve the robustivity of the model.
Technical Outlook for the Stock
Support and Resistance Analysis
Graph 14: Support and Resistance Levels for Logitech International (Investing.com as on 18/10/2020)
As on 16th October 2020, Logitech International’s share price closed at CHF 73.30 after having gained 1.33% since the start of the trading session. Given the sectoral foundation of the company, its stock has clearly been amongst the 'top tech gainers’ throughout the phase of the pandemic (as highlighted in Graph 1 where the price action of Logitech has been compared with the movement of the S&P Composite 1500 Information and Technology). Although the share price did witness a drop in the first few weeks of March due to the systemic impact of the pandemic on share prices worldwide, the share recovered within a span of 3 days and has gained approximately CHF 30.00 ever since (which in itself is an increase of 75%, assuming the base price to be CHF 40). Moreover, the stock has also played a pivotal role in shaping the course of the Swiss Market Index- Mid Price as it is among the top 3 companies with the biggest weights on the index.
As per our analysis, the immediate resistance for this stock is at CHF 74.00 and the immediate support is at CHF 72.00 (as highlighted by the yellow rectangles in Graph 14). Furthermore, some more important levels other than the immediate support are CHF 68.00 and CHF 66.00 on the downside (as shown by the orange and blue rectangles in Graph 14 respectively).
Trend and Pattern Analysis
Graph 15: Trend Analysis for Logitech International (Investing.com as on 18/10/2020)
Having bottomed out on 16th March 2020 due to the pandemic, the price action of the stock entered a rising trendline characterised by a higher-high higher-low formation (as shown by the black line is Graph 15). As highlighted earlier, the bullish sentiment in the stock was widely driven by the explosive outlook investors had, when it came to the IT Sector. However, the higher high higher low formation was broken in the middle of August which was followed by a minor breach of the trendline. The reason why we have characterized it as minor is because rather than imbibing a downtrend, the price action simply entered a parallel channel (as highlighted by the blue rectangles in Graph 15).
However, what came next was a significant correction that coincided with the major tech correction the wider indices faced on a whole. Nonetheless, the share price stuck to its then immediate support of CHF 61.00 and ever since has been in a bullish trendline forming consecutive higher-highs higher-lows (as highlighted by the pink lines in Graph 15). More specifically the higher highs were formed at the levels CHF 68.60, 73.30 and 74.10, on 23rd of September, 5th and 14th of October respectively.
Graph 16: Successive Cup and Handle formation for Logitech International (Investing.com as on 18/10/2020)
As far as significant pattern formations are concerned, the chart of Logitech International seems to suggest something very similar to that we have witnessed for the NASDAQ as well as the S&P 500 IT Index i.e. the cup and handle pattern formation. Although we have already mentioned the specifications of the pattern in the Industry overview section, one difference that we would like to highlight is a successful breakout that emerged as a result of this pattern formation. As highlighted in Graph (), what followed the cup and handle pattern that concluded its formation on 28th September 2020, was a breakout of EUR 4.0 within a mere span of 5 days.
In fact, as highlighted on the same graph, we are witnessing another cup and handle formation emerge in the share price. Though this time, its magnitude is much less as compared to the previous one. Nonetheless, we believe this may carve out to be an ideal opportunity for swing traders looking to scalp quick profits. Furthermore, this may also serve as evidence for those anticipating something similar in the indices.
Moving Average, MACD and DMI Analysis
Graph 17: 50-days, 20-days and 9-days Moving Average, MACD and DMI Analysis of Logitech International (Investing.com as on 18/10/2020)
Next, we move on to observe the Moving Averages. As highlighted earlier, a varied range of moving averages distributed over a varied span of periods allow us to spot a trend and understand whether or not there is momentum in the stock. Consequently, we have plotted the 9 days, 20 days, and 50 days Simple Moving Average in Graph 17 which allows us to fathom the short-medium term sentiment ingrained within the stock. As we can notice, there is a triple positive crossover emerging (i.e the 9 days SMA is over the 20 days SMA which in turn is over the 50 days Moving Average line) thereby indicating a strong bullish sentiment embedded in the stock.
Having established that, we move on to analysing the MACD and the DMI. A combined analysis of both of these indicators allows us to get an overview of the buying and selling pressures dictating the stock at the moment as well as provides us with an insight into whether or not there exists any feasible points at which traders/ investors can enter the trade. Subsequently, we make two crucial observations. The first is that as one would expect, the +DI line is indeed over the -DI line which suggests higher buying pressure, and the second two MACD seems to be indicating that the 12-days MA would soon test the 26-days MA (as the gap between the two lines is decreasing) which in our opinion could be an ideal spot to enter the trade in order to scalp a bullish rally thereafter. Nonetheless, this could mean waiting for a couple of days to ensure that it is only testing but not establishing a negative crossover.
Bollinger Band Analysis
Graph 18: Bollinger Band Analysis for Logitech International (Investing.com as on 18/10/2020)
As highlighted in our earlier reports as well, Bollinger Band analysis has been a vital part of our analysis strategy, primarily because of its ability to provide us with a range for the upper as well as lower limits of candlestick movements at the same time. Resultantly, even with respect to the movement of the candlesticks of Logitech International within the band, the recent breach of the +2 SD bound by two continuous green candles (as highlighted by the yellow box in Graph 18) is an extremely strong indication for the bullish trend in the stock to continue in the coming days. This is further cemented by the fact that the candlesticks remain far from breaking down from the 20-days MA and that they have been trailing it ever since 23rd September 2020 (i.e. also the day the candlestick emerged above the 20-days MA).
RSI and Stochastic Analysis
Graph 19: RSI and Stochastic Analysis for Logitech International (Investing.com as on 18/10/2020)
Finally, we will like to end this segment with the analysis of the RSI and the Stochastic Oscillator. The first indicator in the graph is the Stochastic Oscillator. As it can be seen from the graph, both stochastic lines have recently entered back into the neutral zone from the overbought zone. Having said that, we must highlight that this may not be enough for us to derive a substantial observation as we are still close to the upper bound of 80.
That is why we have complemented our analysis with the Relative Strength Index of Logitech International for a 14 day period which helps in smoothing out the additional volatility that the Stochastic Oscillator may induce. Consequently, having analysed the RSI, we observe that the 52.87 level has been an extremely strong support for the stock (as highlighted by the black line in Graph 19) testing which has always resulted in a move on the upside in most cases. Resultantly, given the recent move towards this level, we are hopeful that in the next couple of days this level will be tested due to a minimalist correction which in turn will lay the premise for the stock to witness a significant move o