Mid-cap stocks are generally defined as companies that have a market capitalization between $2 billion and $10 billion. They are considered ideal bets for investors looking to generate high returns while avoiding the volatility of small-cap stocks.
Corsair Gaming can level up in the new year
Corsair Gaming has sizzled on the stock market since making its debut a few months ago.
Such impressive stock market gains aren't surprising, as the maker of video gaming hardware and peripherals has been delivering terrific quarterly growth in revenue, margins, and earnings. Corsair has won big time from an increase in demand for video gaming hardware, gaming peripherals, and streaming equipment in recent months.
In the third quarter of 2020, the company's revenue jumped nearly 61% over the prior-year period to $457.1 million. Corsair reported 129% growth in the gamer and creator peripherals segment, which supplied just over 35% of its quarterly revenue. The other segment -- gaming components and systems -- reported $295.5 million in revenue: up 38.3% year over year.
Both segments are benefiting from the increasing interest in esports, a market that is expected to clock a compound annual growth rate (CAGR) of over 24% through 2027, according to Grand View Research. The growing popularity of esports has historically boosted PC (personal computer) and gaming hardware sales, as it encourages more consumers to take up gaming and entices existing gamers to upgrade to better equipment.
A 2019 survey by DFC Intelligence found that more than 60% of PC gamers watch esports. The growing popularity of this genre should positively impact PC hardware sales. Analysts watching the PC market indicate the same.
Jon Peddie Research estimates that PC gaming hardware sales were close to $40 billion in 2020. But the market still has a lot of potential. DFC Intelligence forecasts that the gaming hardware market could hit $70 billion in value by 2023.
So, Corsair Gaming's addressable market is expected to continue expanding in the coming years. That bodes well for the company, given its strong positioning in the gaming peripherals and PC systems markets. Corsair claims that it controls 18.3% of the peripheral market, while its share of the PC components market stood at almost 42%, per data from Jon Peddie Research.
The good news for Corsair is that branded PC gaming systems, or pre-built PCs, accounted for 65% of the overall PC gaming hardware market in 2019. The do-it-yourself space accounted for 19%, while peripherals made up 16% of the gaming hardware market.
Corsair's gaming components and systems business -- which accounts for most of its revenue and houses sales of pre-built PCs and other hardware -- looks capable of delivering strong growth in the coming quarters. A combination of solid market share, an increase in hardware sales, and the large addressable market for branded gaming systems will be tailwinds for this segment. Peripheral demand can also be expected to improve.
Why investors should be buying this hot mid-cap play
Corsair Gaming hasn't reported its full-year 2020 results yet, but the company increased its guidance when it issued its last update in November 2020. The company anticipates that its revenue will jump between 50% and 52% for the full year and adjusted operating income will increase a whopping 183% to 192% for the year.
More importantly, analysts expect Corsair to sustain its terrific bottom-line growth over the long run. Yet investors don't have to pay a huge premium to take advantage of the potential growth that Corsair could offer. The stock may seem expensive at 48 times trailing earnings, but the company's rapid pace of growth justifies that rich valuation.
Moreover, Corsair trades at just 30 times forward earnings, thanks to its surging profitability. Investors looking to lap up a fast-growing mid-cap stock should consider buying Corsair Gaming, as it is sitting on solid catalysts that could help it maintain a high growth rate in the long run.