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 playing video games is also expected to drop, thereby hurting the demand for gaming accessories.
Nevertheless, LG Display Company LPL, Mercury Systems MRCY, Stratasys SSYS and Vuzix Corporation VUZI 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.
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 new Omicron sub-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 #190, which places it in the bottom 24% 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 31.2% to $1.17 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 48.9% during this period. The S&P 500 and the broader sector have declined 13.7% and 28.1%, 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 0.51X compared with the S&P 500’s 3.39X and the Zacks Computer and Technology sector’s 3.68X.
Over the last five years, the industry has traded as high as 1.04X, as low as 0.50X and at the median of 0.63X, as the chart below shows.
Trailing 12-Month Price-to-Sales (P/S) Ratio
4 Stocks to Watch
Vuzix: It is a leading supplier of Smart-Glasses and Augmented Reality (AR) technologies and products for the consumer and enterprise markets. This Zacks Rank #2 (Buy) company's products include personal display and wearable computing devices that offer users a portable high-quality viewing experience, provide solutions for mobility, wearable displays and augmented reality. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Vuzix is benefiting from continued strong demand for its smart glasses, particularly the M400 series, from enterprise customers and healthcare providers to overcome operational challenges caused by COVID-19 across a variety of market verticals. Furthermore, the latest ISO class 2 certification received for its M400 glasses would allow the device to be used in clean room environments, thereby enhancing its adoption across electronics, pharmaceuticals, medical devices, optics, solar and aerospace/defense end-markets.
The Zacks Consensus Estimate for 2022 is pegged at a loss per share of 64 cents, which is 2 cents narrower than a loss of 66 cents projected 30 days ago. Vuzix’s shares have declined 59.1% in the past year.
Price and Consensus: VUZI
LG Display: This Seoul, Republic of Korea-based company primarily manufactures and sells thin-film transistor liquid crystal display panels in a range of sizes and specifications primarily for use in televisions, notebook computers and desktop monitors, as well as for handheld application products, such as mobile phones; and medium and large-size panels for industrial and other applications, including entertainment systems, portable navigation devices, e-paper, digital photo displays and medical diagnostic equipment.
LG Display is riding on the healthy demand for its display panels from PC vendors. The PC vendors are witnessing heightened demand for commercial notebooks and desktops as economies around the world are reopening and enterprises are investing in building a hybrid work environment. The solid sales of smartphones are also likely to spur demand for the company’s display panels.
This Zacks Rank #3 (Hold) company supplies products to original equipment manufacturers and multinational corporations. The Zacks Consensus Estimate for its 2022 earnings has been revised downward by 35.7% to 74 cents per share over the past 60 days. The stock has declined 43.6% in the past year.
Price and Consensus: LPL
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 AI 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 fiscal 2022 earnings has been revised upward by 3 cents in the last seven days to $2.38 per share. Shares of the company have plunged 14.7% over the past year.
Price and Consensus: MRCY
Stratasys: This Eden Prairie, MN-based company is benefiting from an increase in demand for 3D printed medical equipment. Notably, the adoption of PolyJet and FDM printers has been encouraging. Markedly, Stratasys’ machines facilitate prototyping within a few hours, reducing 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 RP machines. Apart from these, the company’s RedEye RPM is the world's largest RP and part-building service.
Furthermore, this Zacks #3 Ranked 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 in 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 revised downward by a couple of cents in the past 60 days to 16 cents per share. The stock has depreciated 19.3% in a year’s time.
Price and Consensus: SSYS
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