In our increasingly connected and tech-savvy society, computer hardware has become a household essential worldwide. Nevertheless, the global computer hardware manufacturing market declined 4% to $897.6 billion in 2020, due to restrictive COVID-19 containment measures involving the closure of commercial activities, and supply chain and consumer spending disruptions caused by the pandemic. In addition to this, the increasing adoption of new technologies, such as tablets and smartphones, has been contributing to slowing demand for computer hardware.
The computer hardware sector is one of the largest generators of electronic waste that is hazardous and expensive to treat in an environment-friendly manner. This has led to rising government regulations regarding the disposal and recycling of waste, which is hindering the industry’s growth.
Against this backdrop, it is advisable to avoid Canaan Inc. (CAN) and Logitech International S.A. (LOGI). We think they are not well-positioned to survive industry challenges or grow in the near term.
Canaan Inc. (CAN)
Based in China, CAN provides high-performance computing solutions through its proprietary computing ASICs (Application Specific Integrated Circuit).The company is currently focused on the research and development of advanced technology, including artificial intelligence (AI) chips, AI algorithms, AI architectures, system on a chip (SoC) integration and chip integration.
In the third quarter of 2020, CAN implemented its K210 AI chips in hardware sensors to better ensure the proper execution of social distancing practices in response to the outbreak of COVID-19. During the same period, the company launched its A1246 product series, which continues to lead the industry with its energy efficiency computing power and competitive unit cost.
Despite these developments, CAN’s third quarter (ended September 30) results are far from impressive. The company’s revenues have decreased 75.7% year-over-year to $23.53 million. Its net income has decreased 191.3% from its year-ago value to negative $12.73 million, resulting in a loss per share of $0.54, up 184.4% year-over-year. The stock has gained 211.8% year-to-date and is currently trading at 22.3x its trailing-12-month sales, 401.2% higher than the industry average 4.44x.
CAN’s POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of F, which equates to Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
CAN has a grade of F for Growth and Stability, and D grade for Value and Quality. The stock is currently ranked #17 in the 29-stock Technology – Hardware Industry.
In total, we rate CAN on eight different levels. Beyond what we stated above, we have also given CAN grades for Momentum and Sentiment. Get all of CAN’s ratings here.
Logitech International S.A. (LOGI)
LOGI is a multi-brand company that designs and markets products that help people connect through music, gaming, video, computing and other digital platforms. The company operates through peripheral segments under the brands: Logitech, Logitech G, ASTRO Gaming, Streamlabs, Blue Microphones, Ultimate Ears, and Jaybird.
In January, LOGO launched Logitech Rally Bar/Bar Mini and Logitech RoomMate appliances to aid the setup, management, and use of video conferencing equipment in today’s hybrid and rapidly evolving work environments.
LOGI’s net sales have increased 84.7% year-over-year to $1.67 billion in the third quarter ended December 31, 2020. The company reported a gross profit of $749.01 million and a non-GAAP EPS of $2.45 over the same period.
However, the company’s revenue and earnings growth potential does not appear favorable. Analysts expect LOGI’s revenues to decrease 6.9% year-over-year to $ 4.47 billion in the fiscal 2022 (ending March 31, 2022). A consensus EPS estimate of $4.25 for fiscal 2022 represents a 25.4% decline from its year-ago value. The stock has gained 13.4% year-to-date and is trading 8.35x its forward book value, 34.3% higher than the industry average 6.22x.
LOGI’s POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of C which equates to Neutral in our proprietary rating system. LOGI has a grade of D for Sentiment and C for both Value and Growth. Within the same industry, it is currently ranked #17.
We also have given LOGI grades for Stability, Quality and Momentum. Get all LOGI’s ratings here.
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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CAN shares were trading at $19.34 per share on Thursday morning, up $0.85 (+4.60%). Year-to-date, CAN has gained 226.14%, versus a 4.18% rise in the benchmark S&P 500 index during the same period.
About the Author: Rishab Dugar
Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands. More...
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