Is Now the Right Time to Buy Corsair Gaming?
With the pandemic confining people to their homes, many people have turned to video games for entertainment. As a result, Corsair game (NASDAQ: CRSR) saw its sales increase and the value of its shares more than doubled just months after its IPO.
But as lockdowns have largely ceased across the country, the stock has fallen almost 40% from its highest level since the start of the year, and investors are likely wondering if that is still. the right time to own Corsair shares. So let’s take a look.
Image source: Getty Images.
A quick look back
Before delving into Corsair’s outlook, it’s worth taking a quick look at what the company actually does and how the pandemic has fueled its business.
Corsair Gaming is a global supplier of high-end accessories and equipment for the esports market. While this may sound somewhat niche, the market is actually quite large and growing. Modern gamers can earn big wins by attracting large audiences to streaming platforms like YouTube and Twitch. And to compete at the highest level, these players need to be equipped with the right equipment. This is where Corsair comes in.
The company generated $ 529 million in revenue from sales of its accessories and gaming systems in its most recent quarter, an increase of 72% from the previous year. This is a significant acceleration from the less than 20% revenue growth the company experienced prior to its IPO. Additionally, Corsair’s total gross margin fell from 25.5% a year ago to 30.3% at the last report.
But while the rapid acceleration in sales isn’t enough proof of the pandemic’s impact on the business, CFO Michael Potter was even more blunt on the fourth quarter conference call, saying ” Strong year-over-year revenue growth was due in part to COVID-19 shelter-in-place orders. “
What’s in store for you?
While the pandemic has undoubtedly helped increase demand for Corsair products, that doesn’t necessarily mean the strong financial performance is temporary.
In fact, Corsair CEO Andy Paul has said he believes increasing spending on gaming components becomes more of a way of life and less of an increase in revenue. Management’s forecast for the rest of the year also appears to support this. In the first quarter, the company increased its revenue forecast for the full year to $ 1.9 billion to $ 2.1 billion, an increase of about 18% from its 2020 revenue.
While this advice should give investors some confidence, it should be borne in mind that the company is starting to realize the strong performance boosted by last year’s pandemic. Industry experts believe consumer spending on gaming accessories actually declined year over year in June, which should temper investor expectations for the next few quarters.
The big picture
While Corsair will likely experience a slowdown in growth over the next 12 months, its underlying long-term trends point to a bright future.
According to industry estimates, from 2015 to 2020, total spending on video games increased steadily and included a 75% increase in spending on gaming accessories. Much of this growth is expected to persist over the next several years.
But it’s not just industry trends that should get investors excited. Thanks to its engineering and the quality of its premium products, Corsair is widely regarded as a premium brand in the aftermarket. This affinity with customers has allowed the company to charge more than its competitors in many of its product offerings because customers know they will get top-notch equipment.
When it comes to Corsair shares, the company is currently valued at an operating price / cash flow multiple of approximately 14 times, well below the market average. For a company that has proven to be a mainstay of a growing industry over the past two decades, investors have reason to be optimistic about this valuation, even with the potentially erratic near-term financial results.
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Ryan Henderson has no position in the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.