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3 Computer Peripheral Stocks in Focus Amid Industry Challenges

The Zacks Computer-Peripheral Equipment industry has been reeling under the effects of macroeconomic headwinds, including inflationary pressure and higher interest rates. These have induced sluggishness in IT spending, affecting the demand for computer peripherals. The industry is also showing signs of struggle as demand for remote working and online learning-related computer peripherals has declined in the post-pandemic era. Also, the PC refreshment cycle for the installed base during the pandemic is yet to come, hurting the demand for PCs and peripherals.

Nevertheless, Logitech International LOGI, Mercury Systems MRCY and TransAct Technologies TACT are well poised to benefit from the growing demand for professional gaming accessories and rising usage of transaction-based printers and related products. Moreover, increasing government spending on modernizing radar and electronic warfare systems has been a tailwind.

Industry Description

The Zacks Computer-Peripheral Equipment industry comprises companies offering computer input, output and storage devices. These include keyboards, mice, 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 mice, wired gaming headsets, in-ear gaming headphones and controllers for Xbox One and Playstation, are offered by these companies. 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.

4 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 expected to boost prospects. Markedly, e-sports is also likely to 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 COVID-19 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.

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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.

Macroeconomic Headwinds Might Hurt IT Spending: Still-high interest rates and protracted inflationary conditions are hurting consumer spending. On the other hand, enterprises are postponing their large IT spending plans due to a weakening global economy amid ongoing macroeconomic and geopolitical issues. This does not bode well for the Computer-Peripheral Equipment market’s prospects in the near term.

Elevated Operating Expenses to Hurt Profitability: To survive in the highly competitive computer peripheral market, each player is aggressively investing in research and development to enhance their product portfolio and broaden their capabilities. Moreover, companies are looking to improve their sales and marketing capabilities, particularly by increasing their sales force. Therefore, elevated operating expenses to capture more market share are likely to dent margins in the near term.

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 #225, which places it in the bottom 10% 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 outperform 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 about this group’s earnings growth potential. The industry’s bottom-line estimate for 2024 has moved to a loss of 34 cents from earnings of 18 cents expected a year ago.

Industry Fiscal 2024 EPS Estimate Revision

 

Despite the gloomy industry outlook, a few stocks are worth buying 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 plunged 16.1% during this period. The S&P 500 and the broader sector have risen 26.5% and 39.8%, respectively, 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 0.14X compared with the S&P 500’s 3.99X and the Zacks Computer and Technology sector’s 5.34X.

Over the last five years, the industry has traded as high as 1.22X, as low as 0.13X and at the median of 0.66X, as the chart below shows.

Trailing 12-Month P/S Ratio (Industry Vs S&P 500)

 

Trailing 12-Month P/S Ratio (Industry Vs Sector)

3 Stocks in Focus

Logitech: It is a global leader in peripherals for personal computers and other digital platforms. The company develops and markets innovative products in PC navigation, Internet communications, digital music, home entertainment control, video security, interactive gaming and wireless devices.

Logitech’s strong fourth-quarter fiscal 2024 results have boosted investors’ confidence in its recovery from the post-pandemic downturn. The quarter marked the first year-over-year sales growth for Logitech after two and a half years of downturn post pandemic-driven boom. Heightening hybrid work trends are likely to boost demand for its video collaboration, keyboards & combos and pointing device tools. Thriving cloud-based video conferencing services continue to be its key catalyst. The rising adoption of new mobile platforms in both mature and emerging markets will fuel demand for its peripherals and accessories. Its partnerships with cloud providers like Zoom Video, Microsoft and Google are major upsides.

The Zacks Consensus Estimate for fiscal 2025 earnings has been revised upward by 15 cents in the past 30 days to $4.25 per share. Shares of this Zacks Rank #3 (Hold) company have rallied 35.2% over the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price and Consensus: LOGI

 

Mercury Systems: It is one of the world’s leading providers of sensor and safety critical mission processing subsystems. The company’s products and solutions are used for various critical aerospace, defense, commercial aviation and intelligence programs.

Mercury Systems is benefiting from modernization in radar, electronic warfare and C4I, which is providing it with new opportunities in weapon systems, space, avionics processing, mission computing and embedded rugged services. Domain expertise in analog and digital integration has helped it build a solid long-term relationship with defense prime contractors.

The Zacks Consensus Estimate for this Zacks Rank #3 company’s fiscal 2024 bottom-line is currently pegged at a loss of 81 cents per share, wider than the loss of 78 cents per share expected 60 days ago. MRCY stock has declined 31.5% in the past 12 months.

Price and Consensus: MRCY

 

TransAct Technologies: The company designs, develops, manufactures and markets transaction-based printers and related products under the ITHACA, MAGNETEC and TRANSACT.COM brand names. This Zacks Rank #3 company focuses on five vertical markets — point-of-sale (POS), gaming and lottery, financial services, kiosk and the Internet.

TransAct Technologies is benefiting from the growing demand for its products and services amid accelerated digital transformation and business automation across organizations. The company's printers are trusted worldwide to provide crisp, clean transaction records from receipts, tickets and coupons, register journals and other documents.

The Zacks Consensus Estimate for the 2024 bottom line has widened to a loss of 45 cents per share from the loss of 25 cents expected 30 days ago. The stock has plunged 50.1% over the past year.

Price and Consensus: TACT

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Logitech International S.A. (LOGI) : Free Stock Analysis Report

TransAct Technologies Incorporated (TACT) : Free Stock Analysis Report

Mercury Systems Inc (MRCY) : Free Stock Analysis Report

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