Investors looking for a growth stock to ride the momentum in the video game industry might want to consider Corsair Gaming (CRSR -0.68%). New processors from Intel, NVIDIA (NVDA 1.45%), and Advanced Micro Devices (AMD 0.09%) have triggered a strong upgrade cycle for PC components, which is great news for Corsair Gaming, one of the leading brands in gaming peripherals and system hardware.
Corsair is getting swept into the upgrade frenzy
Corsair Gaming completed its initial public offering in September and has already reported stellar earnings results for the third quarter. Revenue climbed 60% year over year, driven by growth across its two operating segments, computer components and streaming peripherals.
The company cited strong consumer interest in learning about high-performance gaming and streaming gear, which are driving upgrades. Corsair sells essential products for gamers who want to keep their gaming PC performing in top shape, such as memory modules, computer cases, power supply units, cooling solutions, video game controllers, headsets, and mice and keyboards designed for the gaming enthusiast.
When gamers buy a high-end graphics processing unit (GPU), such as the new NVIDIA RTX 3080 or AMD's RX 6000 series, that purchase might also require a new power supply unit to provide enough watts to run the GPU. If a gamer is buying a new graphics card to play the latest games, that can also lead to upgrades in system memory. Either way, Corsair Gaming provides a variety of products to meet players' needs.
In Corsair's third-quarter earnings report, CEO Andy Paul alluded to this dynamic by stating, "With more time spent at home, and some great new technology refreshed from Intel, NVIDIA, and AMD, there is an increased demand for people to build new Gaming PCs to play the latest games on."
Corsair released several new high-performance products to take advantage of the favorable environment for gaming recently, including the flagship K100 gaming keyboard, a new wireless mouse, a range of new computer cases, and pre-built gaming PCs featuring the NVIDIA RTX 30 series GPUs. Management plans to launch new products at the rate of approximately one per week to gain market share in the near term.
Paul provided more insights about the trends underpinning Corsair's business during the third-quarter conference call. He said, "We have built a passionate base of loyal customers who build and upgrade their gaming PCs using Corsair components, and then use our peripheral products for gaming or streaming."
Corsair experienced strong demand across all product lines, especially with streaming and creator peripherals, where sales soared 129% year over year in the third quarter. Corsair particularly saw strong sales of microphones during the quarter, and it also sells other essentials for streaming, including game capture cards, green screens, lighting, and other gear.
Streaming products made up only 30% of total revenue through the first three quarters of 2020, but it's Corsair's fastest-growing segment.
Ending Sept. 30, 2020
|Gaming and creator peripherals (streaming gear)||$347.5 million||74%|
|Gaming and component and systems||$798.5 million||40%|
|Total revenue||$1.15 billion||49%|
The best bang for your buck
The stock has jumped 174% since the IPO, which can be attributed to undervaluation at the time of the offering. Even after the sharp rise in the stock price, Corsair trades at a forward P/E of 28 based on the consensus earnings estimate for 2020. That is a reasonable price to pay given Corsair's underlying business growth right now, in which net profits are also improving from a favorable sales mix shift to higher-margin products, such as streaming gear.
Corsair's valuation is also much lower than the higher valuations of NVIDIA and AMD.
|Trailing 12-month revenue||$1.47 billion||$14.77 billion||$8.65 billion|
Corsair is seeing a lot of first-time buyers, a sign that the market for Corsair's products is expanding. Management expects these customers to come back in the future for more upgrades.
What's more, the company is well positioned to finish 2020 on a high note, given that gaming headsets and other peripherals could make popular gift-giving items in light of the increased interest in gaming right now.
Overall, Corsair has the advantage of growing off a small base of revenue compared to larger tech companies, and it has plenty of room to gain market share in a PC and streaming gear market estimated at $36 billion. For that reason alone, Corsair's share price could outperform other tech stocks in 2021 and beyond.