Corsair Gaming is a leading American computer hardware company founded in 1994 with headquartered in California that develops and manufactures high-performance gear for gamers. From PC components, such as RAM integrators, to premium streaming equipment, Corsair delivers a ton of products for various gamer needs. Corsair also produces dedicated keyboards and fixed PC cases for gaming, etc. Through its subsidiary brand Elgato, Corsair provides studio equipment and accessories for content creators, such as Youtube creators.
Back to Corsair, in 2017, the company got acquired by EagleTree Capital in a deal valued at $525 million. Up to this day, Corsair Founder and CEO Andy Paul retains his equity stake and remains in his role as CEO. As of today's date, Eagle Tree owns 92% of Corsair Gaming and the company has only been public for less than a year. When they IPO’d last September, they went live at $17.25, and subsequently got pumped to an all-time high at $43.23 in February. Since then, CRSR has underperformed the Nasdaq and is currently down 25% year to date. With that in mind, we’ll be sizing up the opportunity in this stock.
Last earnings was in fact Corsair Gaming’s best Q2 in history. During the quarter, total net revenue grew by 24.3% year over year to $473 million for the quarter. And the quarter showed strong demand for PC upgrades and livestreaming peripherals like Elgatos, and that segment in particular grew by 40.9%. It seems like demand for gaming is strong despite economies and travel re-opening.
Despite seeing such strong growth, why did the stock fall after earnings? They recorded a miss on EPS by $0.03 due to higher logistics & supply chain costs, which are expected to remain elevated through the upcoming quarter as well. For the past year, there has been a global chip and CPU shortage, which is pretty much what explains NVIDIA stock going up so much in the past year. Because of this shortage, many gamers haven't been able to buy the components they need to upgrade their gaming PCs, resulting in pent up demand.
Also, during the month of June, CRSR lost 17% after one of the company’s top competitors got downgraded to a neutral from a buy rating by a Goldman Sachs analyst. Although this downgrade wasn’t to Corsair directly, it reflects badly on the industry and causes fear that the same could happen to Corsair.
Cheap growth stocks are rare. And Corsair is cheap on all accounts. After the recent dip, the stock now trades at a low valuation of 15 times free cash flow. The price to sales ratio is also incredibly close to 1 - and that’s for a growth company with strong brands like Elgato. Corsair's valuation is well below the market average, and that's considering that Corsair is a top gaming accessories provider serving a growing video game industry . The global gaming market is said to currently be worth $175.8 billion. And it is estimated that by 2023, the market could be worth up to $204.6 billion. If Corsair pulls in 2B of annual revenue, that puts them at an approximate 1% share of the entire global industry. If you think about it, demand for games, esports, and gaming equipment isn’t likely to slow down any time soon. Plus, earnings growth, as seen with Corsair guidance will remain strong. If we just look at the past 5 years, total spending on gaming accessories grew by 75%, and much of that growth is expected to persist over the coming years.
