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Why Corsair Gaming Stock Is Too Cheap to Ignore

By John Ballard – Nov 4, 2021 at 8:31AM

Key Points

  • The supply bottlenecks caused some missed sales opportunities in the third quarter.
  • Demand for gaming peripherals looks healthy, stemming from new streaming interest, console upgrades, and new product launches.
  • The shortage of PC components could lead to pent-up demand once supply bottlenecks ease.

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The stock sells for a modest valuation despite tremendous growth opportunities ahead.

When a company posts a decline in sales and profits, but the stock still goes up, it's usually a good sign that the stock is undervalued. That's what happened to Corsair Gaming (CRSR -0.13%) after its third-quarter earnings report on Tuesday.

Supply chain issues pinched Corsair Gaming's sales, causing revenue to drop 14% year over year. Profits also plunged to a meager $1.8 million, or $0.02 per share, compared to $36 million in the same period last year.

Apparently, investors were expecting much worse numbers, as the stock price jumped a few percentage points on the news. Let's look at the state of Corsair's business and why the stock could be a steal at the current price level.

A gamer playing a video game on a PC.

Image source: Getty Images.

Demand trends look healthy

Looking at each segment's performance, the slump in revenue was due to the 13.8% decrease in gamer and creator peripherals revenue, which came in at $139 million. Sales of gaming components -- including memory chips, PC power supplies, computer cases, and pre-built gaming PCs -- increased by 14.8% year over year to $252 million.

In Q3 2020, when everyone was home playing video games, Corsair reported a 61% year-over-year jump in revenue, driven by a 129% surge in creator peripherals and a 38% increase in gaming components and systems. Obviously, that stellar performance wasn't going to repeat year after year, but many people who picked up the hobby during the pandemic are still sticking with it.

Looking at the year-to-date performance, the long-term trend comes into focus, with revenue up 22% year over year through the nine-month period through Q3.

A bar chart showing Corsair's revenue growth over the last few years.

Image source: Corsair Gaming's Q3 2021 earnings presentation.

It's notable that Logitech's Streamlabs' Q3 report shows that the total number of unique streaming channels across Amazon's Twitch, Alphabet's YouTube Gaming, and Meta Platform's Facebook Gaming is only down 3.4% year over year. Twitch has more than twice the number of unique channels than it did two years ago, ending Q3 with 10.4 million.

Plus, the upgrade cycle underway in the console market could foretell new sales of game controllers and headsets over the next few years as the installed bases of Sony's PlayStation 5 and Microsoft's Xbox Series X increase.

Corsair Gaming has launched 113 new products this year to serve new players that have come into the market. One of its goals is to expand into new categories to grow the long-term addressable market. The recent launches of the Elgato Facecam and Xeneon gaming monitor represent new category entries for Corsair Gaming, stretching its long-term growth opportunity to the $1 billion-plus webcam market and $4 billion gaming display market. 

Pent-up demand is in the cards

Another factor that contributed to weak sales results was the skyrocketing prices of gaming GPUs. The chip shortage has made it difficult and costly for gamers to upgrade, and the holiday season is typically the time of year gamers want to buy a new graphics card to play the latest blockbuster games.

Corsair estimates that the shortage of components has impacted its revenue in 2021 by at least $100 million, or approximately 10% of its revenue so far this year. As a result, management lowered its full-year revenue guidance to a range of $1.825 billion to $1.925 billion, down from previous guidance of $1.9 billion to $2.1 billion. 

The good news is that this is not lost revenue. Gamers who want to upgrade eventually will do so when prices come down and inventory is more plentiful. This could lead to pent-up demand being unleashed as soon as the supply chain problems are resolved, which is expected to happen in 2022. 

Why the stock is a buy

Analysts currently expect revenue to increase 10.3% this year before rising 8.8% next year. Earnings per share could reach $1.72 next year, which puts the stock's forward price-to-earnings ratio at a cheap 14.5.

Corsair is not only serving the hundreds of millions of people that play video games worldwide, it's also got an overlooked opportunity to expand its product offerings to serve non-gamers, such as content creators and remote workers. Corsair has tremendous growth potential, and that's why the stock is a bargain at these modest valuation levels.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Ballard owns shares of Amazon, Corsair Gaming, Inc., and Microsoft. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Meta Platforms, Inc., and Microsoft. The Motley Fool recommends Logitech International and recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

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