Is Now the Right Time to Buy Corsair Gaming?

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With the pandemic confining people to their homes, many people turned to video games as a means of staying entertained. As a result, Corsair Gaming (NASDAQ:CRSR) saw its sales surge and the value of its stock more than double just a few months following its IPO.

But as lockdowns have largely ceased across the country, the stock has fallen almost 40% from its year-to-date high, and investors are likely asking themselves whether or not it’s still a good time to own Corsair stock. So let’s take a look.  

A young person playing video games on a PC.

Image source: Getty Images.

A quick glance back

Before diving into Corsair’s outlook, it’s worth quickly reviewing what the company actually does and how the pandemic fueled its business. 

Corsair Gaming is a global provider of premium accessories and equipment for the esports market. While it might sound somewhat niche, the market is actually quite large and growing. Modern gamers can earn significant payouts by attracting a large audience on streaming platforms such as YouTube and Twitch. And in order to compete at the highest level, those gamers need to be equipped with the right hardware. That’s where Corsair comes in.

The company generated $529 million of revenue from sales of its gaming accessories and systems in its most recent quarter — a 72% increase from the year-ago period. That’s a meaningful acceleration from the less than 20% revenue growth that the company saw prior to going public. Additionally, Corsair’s total gross margin jumped from 25.5% a year ago to 30.3% as of the latest report. 

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But if the rapid acceleration in sales isn’t enough evidence of the pandemic’s impact on the business, CFO Michael Potter was even more direct on the fourth-quarter conference call, stating that “the strong revenue growth year over year was driven in part by the COVID-19 shelter-in-place orders.”

What’s ahead?

While the pandemic undoubtedly helped increase demand for Corsair’s products, that doesn’t necessarily mean the strong financial performance is temporary. 

In fact, Corsair CEO Andy Paul said he believes the increased spending on gaming components is becoming more of a way of life and less of a pull-forward in revenue. Management’s guidance for the rest of the year seems to support that as well. In the first quarter, the company upped its full-year revenue projection to somewhere between $1.9 billion and $2.1 billion — a roughly 18% increase from its 2020 revenue.

While that guidance should give investors some confidence, it’s worth keeping in mind the company is starting to lap the strong performance spurred on by the pandemic from last year. Industry experts estimate consumer spending on gaming accessories actually declined year over year in June, which should temper investor expectations for the coming quarters. 

The big picture

Although Corsair will likely experience a slowdown in growth over the coming 12 months, its long-term underlying trends point to a bright future. 

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According to industry estimates, from 2015 to 2020, total spending on video games grew steadily and included a 75% increase in gaming accessory spend. Much of that growth is expected to persist over the coming years. 

But it’s not just the industry trends that should have investors excited. Thanks to its best-in-class engineering and product quality, Corsair is widely regarded as a premium brand in the accessories market. This customer affinity has enabled the company to charge more than its competitors in many of its product offerings since customers know they’ll be getting top-tier equipment.

As for Corsair’s stock, the company is currently valued at a trailing price-to-operating cash flow multiple of roughly 14 times — well below the market average. For a company that has proven itself to be a stalwart of a growing industry over the last two decades, investors have plenty to be optimistic about at this valuation, even with the potentially lumpy short-term financial results ahead. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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