What does the global shipping crisis mean for Corsair Gaming’s inventory?
Shareholders of Corsair game (NASDAQ: CRSR) have been struggling lately. Mainly due to concerns over the global shipping crisis, the company’s shares are down more than 45% from their annual highs.
With no sign that these issues will abate anytime soon, investors are probably wondering if it is still worth holding onto the stock. We will take a look.
Corsair’s supply chain issues
Before we talk about Corsair’s future, it’s probably best to explain what is actually driving down the company’s stock.
By now, most investors have probably heard of the global shipping problems. Whether it’s cargo ships anchored off the coast waiting for a port, or a lack of computer chips, many businesses are struggling to stock their shelves. And Corsair Gaming is no exception.
Although it sells gaming equipment and accessories all over the world, it manufactures the majority of its products in Asia. Since this model often requires moving finished products to different countries, the current excess demand for sea containers has had a huge impact on Corsair’s shipping costs. Investors got their first glimpse of this problem last quarter when CEO Andy Paul said “the cost of containers is probably three to four times what it was two years ago.”
But not all of Corsair’s problems are purely related to shipping. On October 14, the company released preliminary third quarter results that it was struggling to acquire affordable graphics processing units (GPUs), which are a necessary component of many of its products. Due to the shortage, Corsair also cut its revenue forecast for the full year by around 6%.
The bright spots
While the various supply chain issues have undoubtedly dampened investor expectations for the near future of the company, there are points on which shareholders need to be optimistic. Even taking into account the recent revised forecast, Corsair still expects revenue growth of around 10% from the previous year. In addition, according to research firm NPD Group, spending on gaming accessories in the United States since the start of the year is up 9% from a year ago, indicating sustained demand. client.
While product sourcing issues clearly weigh on Corsair’s costs and deliveries in the short term, management has made it clear that any continued cost pressure can be passed on to the end customer. In fact, on the company’s last conference call, Andy Paul said that if the company sees cost increases “that are fundamental, that are going to stay there, we obviously adjust that in pricing.” However, he added that the company is still monitoring the situation closely to determine if the cost increases are just temporary.
Another somewhat positive point that investors should consider is that these cost pressures are industry wide. So while Corsair is certainly not immune to challenges, its competitors are feeling a similar impact. Fortunately, however, Corsair appears to be in a better position to raise prices if necessary, as the company is known for the quality of its products and not just for being a low-cost supplier.
Takeaway for investors
Even keeping all the supply chain issues in mind, one could argue that future returns on Corsair shares look even more attractive today than they did before. Corsair’s competitive position has actually not changed much and the company still claims a leading market share in several of its product categories.
In addition, the company is benefiting from favorable winds in the industry in general. With the growth of popular content sharing platforms like YouTube and Twitch, gamers are becoming more competitive in the hopes of monetizing their gameplay. This process often requires tooling by purchasing the best equipment and accessories, which creates a high demand for Corsair products.
The recent withdrawal of Corsair shares left the company valued at just over 14 times its 12-month operating profit, a discount of over 30% from its valuation at the start of the year. With demand still quite high, and the company having said that any sustained increases in costs should be passed on to the consumer, the current valuation looks quite cheap for a business that is expected to continue to experience strong growth over the next decade.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.