Shares of Corsair Gaming (CRSR 1.55%) have more than doubled in value since the initial public offering (IPO) in September. Corsair is a leading brand in the world of gaming, supplying the essential gear that gamers need to participate in esports titles and broadcast their gameplay on streaming platforms.

While Corsair operates in a highly competitive market, its latest earnings results show a business with a lot of growth potential. Here's why the best is yet to come.

Serving a hot market in online entertainment

The same trend in streaming that has changed how we watch movies and shows is playing out in the $175 billion video game industry. But the gaming industry has something going for it that the movie business doesn't. Every gamer can buy the right gear and broadcast their gameplay on popular game streaming platforms, such as Amazon's Twitch, to build a following and be their own content producer.

Casual gamers are starting to see their hobby as a means to socialize while playing and engage with viewers through chat during a broadcast. It's a market that is going viral, and Corsair Gaming is in the sweet spot.

A girl playing a video game on a PC while streaming.

Image source: Getty Images.

Live game streaming has emerged as a mainstream social network for millions of gamers. A Nielsen survey found that 71% of millennial gamers in the U.S. watch gaming content on streaming platforms for an average of six hours per week. Gamers spent a total of 12 billion hours watching gaming content in 2019. 

These trends explain why Corsair's revenue skyrocketed last quarter, jumping 60% year over year. This was primarily driven by strong demand for gaming and streaming products, including keyboards, mice, headsets, capture cards, and other studio accessories. The gamer and creator peripherals segment grew revenue by 129% year over year, making up 35% of Corsair's total revenue.

Corsair is also benefiting from millions of gamers who are upgrading their gaming PCs with new components, such as power supply units, cooling solutions, and DRAM modules. The gaming components and systems segment grew 38% year over year and comprised 65% of total revenue. 

The opportunity could be massive

Management believes the market for its products could multiply if current trends continue in gaming. In 2019, the global market for PC gaming and streaming gear was estimated to be $36 billion. However, 83% of this spending was from only 18% of the total number of people who play games on PC, which was estimated at 524 million. In other words, it's mostly hardcore gamers who are driving revenue growth at Corsair right now. But as more casual gamers begin upgrading, the market could explode.

The growing popularity of professional gaming, or esports, and the growth of live game streaming are already encouraging casual gamers to up their game. Just as people who want to learn golf or another competitive sport will seek out trainers to learn how to play well, Corsair believes the same market is starting to take root in the video game industry. 

To capitalize on this opportunity, Corsair recently announced the acquisition of Gamer Sensei, a top platform for esports coaching. All that said, this could develop into a sizable market for Corsair to cross-sell its products. 

Why Corsair should be a good investment

Corsair has plenty of competition, so its pathway to more growth won't be easy. There is Logitech International (LOGI 0.06%), which is a juggernaut in the gaming peripherals market. There are also several other less well-known but equally strong brands, including Razer (RZZRY), Steelseries, and Roccat, among others. 

It's a crowded market, but Corsair has been around for a few decades and has already earned a top-three U.S. market share spot across most of its product lines. That reveals brand power, which is the most important advantage in this market. All these different brands make a quality product, but most gamers are going to gravitate to the products that they trust.

What's more, Corsair has successfully expanded into new product categories over time, including console controllers and prebuilt gaming PCs and laptops. It plans to continue looking for opportunities to expand its offerings, which suggests that Corsair could see its addressable market expand. 

Even though this recent IPO stock has climbed 150% in just a few months, it doesn't look all that expensive relative to its growth prospects. The shares currently trade for an enterprise value-to-EBITDA ratio of 18 based on management's 2020 guidance. That is not a high valuation given Corsair's momentum, with plenty of growth still ahead.