Corsair Gaming (CRSR -1.63%) is a leading provider of premium video game equipment that players use to take their gameplay to the next level. 

While the pandemic was keeping people at home, it was unsurprising that people spent a lot more time playing video games, and Corsair has been reaping the benefits. But the big question investors seem to be asking now is whether or not its newfound growth is here to stay. 

Video game esports player looking upset.

Image source: Getty Images

What does Corsair do?

Before attempting to predict Corsair's future, it's probably worth taking a good look at its business model.

The company supplies equipment for both the console and PC gaming markets, which combined account for more than 1 billion players globally. As platforms like Twitch and YouTube have helped promote the rise of esports, casual gamers are growing more competitive, and gameplay streaming is becoming mainstream.

To facilitate the viewing of esports competitions, high-performance production systems, top-quality equipment, and software are required to mold it all together -- and this is where Corsair fits in. Whether the hardware one needs is a pair of high-end headphones for communicating with teammates, a top-tier gaming PC, or a custom controller for your console, Corsair supplies it all.

It's the leader in gaming systems with a roughly 42% market share in the PC components category. Though skeptics might question the size of Corsair's market opportunity, the company itself seems to have no doubt. In its S-1, the company noted that in 2019, 94 million of the 524 million PC gamers globally spent more than $1,000 each on their gaming setups. 

Corsair by the numbers

Major industry tailwinds seem to be helping Corsair achieve strong growth rates. In the first quarter, its overall revenue grew 72% year over year to $529 million. The company also continues to see improved profitability, as gross margin jumped from 25.5% a year ago to 30.3%.

However, uncertainty lingers about what the reopening of the U.S. economy will mean for Corsair. Despite its massive sales growth in the first quarter, management guided for a modest 18% increase in revenue for the full year. While that would still be considered solid growth by traditional standards, it's a significant slowdown from what the company has delivered in recent quarters. 

This uncertainty seems to be reflected in the company's stock price as well. Corsair's current market cap is about $3 billion, yet it expects to generate between $235 million and $255 million in adjusted operating income for 2021. This gives it a forward price-to-adjusted-operating-income ratio of roughly 13, based on the middle of its guidance. That's about half the valuation of its closest competitor, Logitech (LOGI -1.59%)

A look ahead

Though management appears hesitant to lay out optimistic projections for the company's near-term future, the underlying trends are clearly in Corsair's favor. Industry experts estimate that the number of unique esports viewers will grow by 10% annually through 2023. As more fans flock to esports, competitive gamers will need high-quality gear and equipment, which should naturally drive more customers toward Corsair's products. 

Given its favorable valuation, its leading market position in several categories, and the growth trends in the gaming industry broadly, Corsair shareholders have plenty to be excited about.