Shares of Corsair Gaming (CRSR 1.37%) have been hammered badly over the past year, losing about 43% of their value as the company's pandemic-fueled surge of 2020 fizzled out in 2021.
However, it looks like the worst is behind the video gaming hardware and peripherals provider. Its 2021 fourth-quarter results, which were released on Feb. 8, point toward an acceleration in its growth going forward. What's more, Corsair stock has started gaining some ground after a difficult start to 2022.
CRSR data by YCharts.
It wouldn't be surprising to see shares of Corsair Gaming go parabolic (i.e. the stock makes an upward price run that looks like the right side of a parabolic curve). In other words, Corsair's stock price could go up significantly and quickly following its latest results. Let's see why that may be the case.
Corsair Gaming has done well despite challenges
Corsair reported fourth-quarter revenue of $510.6 million, down 8.2% from the prior-year period. The company's adjusted earnings fell to $0.35 per share from $0.53 per share in the year-ago period. However, it is worth noting that Corsair's revenue had soared 70% year over year in the comparable quarter as consumers increased their purchases of gaming-related hardware and components to keep themselves entertained at home during the pandemic.
Clearly, Corsair was facing tough year-over-year comparisons going into its fourth-quarter report. However, the company's results exceeded Wall Street's expectations of $0.25 per share in earnings on $497 million in revenue. It is worth noting that Corsair's results were better than expected despite supply chain constraints and logistics challenges that hampered the company's growth in the second half of 2021.
Image source: Getty Images.
CFO Michael Potter said on the latest earnings conference call: "Logistics remains slower than usual with many shipping lanes taking over double the normal shipping times and at a much higher cost."
However, Corsair managed to finish 2021 with a 12% increase in revenue to $1.9 billion despite the challenges it faced. This was slightly higher than the midpoint of the company's original guidance range of $1.8 billion to $1.95 billion issued in February 2021.
This stronger-than-expected performance can be attributed to the secular growth of the market that Corsair operates in, as well as the company's steps to expand its product lines to grab a bigger share of the end-market opportunity. These are the two reasons why Corsair's growth could switch into a higher gear and trigger a hot stock price rally.
Things are about to get better
Corsair Gaming launched 141 new products last year and it now offers 30 types of peripherals. These include mechanical gaming keyboards, gaming console controllers, gaming chairs, mice, mousepads, headsets, capture cards, and several other peripherals that gamers and creators may need. The company also sells central processing unit (CPU) cases, memory, storage, power supplies, cooling solutions, and prebuilt gaming PCs.
The gaming components and systems business produced two-thirds of Corsair's revenue last year, with the gamer and creator peripherals business accounting for the rest. The good part is that both these segments are built for growth.
Corsair points out that the total addressable market of gaming peripherals worldwide could increase to $14.3 billion in 2023 as compared to $11.5 billion last year. Meanwhile, spending on video gaming components by enthusiasts who build their own PCs is expected to jump to $46 billion in 2026 from last year's estimate of $21 billion.
Corsair is in a solid position to take advantage of these lucrative markets because of its strong market share in several categories. The company estimates that it controls 42% of the gaming components market (excluding memory), which makes it the largest player in that space. Meanwhile, the company's share of the gaming memory market stands at 60%.
Even better, Corsair enjoys such a strong market share despite premium pricing. The company estimates that the average selling prices (ASPs) of its memory, cooling products, CPU cases, and power supply units are higher than its competitors by 43%, 23%, 25%, and 29%, respectively. So a combination of strong pricing power and impressive market share in the gaming hardware market should pave the way for long-term growth.
On the other hand, Corsair expects its creator business to clock annual growth of 20% to 25% over the long run as well. All of this shows why Corsair sees its annual revenue hitting $3.5 billion in 2026. That would be a 75% increase over its estimated 2022 revenue of $2 billion, translating into a compound annual growth rate of 15% from 2022 to 2026.
The stock is a solid buy right now
Corsair Gaming's future seems bright, so it is not surprising to see the stock carry a median 12-month price target of $31 a share, which would translate into 33% gains from current levels. The high price target of $36 suggests 55% upside from Corsair's current closing price.
All this makes Corsair Gaming a video gaming stock worth buying right now, as it is trading at just 23 times trailing earnings and 14.5 times forward earnings, which means that it is available at a discount to the S&P 500's earnings multiple of 25.
