Corsair Gaming's (CRSR -3.03%) stock price has fallen off a cliff in the past year, losing over half of its value as investors have worried that the company's pandemic-driven sales surge may not last forever.
Corsair's first-quarter 2022 results, which were released on May 5, make it clear that the company has indeed lost the boost provided by shelter-in-place orders, which were put in place a couple of years ago to get control of the COVID-19 outbreak. The company, which sells video gaming hardware and peripherals, was a big winner amid the pandemic as an increase in the number of people playing video games to keep themselves entertained while being locked down created healthy demand for its offerings.
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Corsair also benefited from stimulus checks, as people were reportedly spending a third of their checks on video games. But investors shouldn't forget that Corsair is operating in a market that seems built for long-term growth. So should investors take advantage of the severe pullback in Corsair stock and buy it? Let's find out.
Corsair Gaming will have a difficult 2022
Corsair reported $380.7 million in Q1 revenue, down 28% year over year. The company's adjusted net income fell to $0.09 per share from $0.58 per share in the prior-year period. It is worth noting that Corsair's Q1 revenue was 23% higher than the first quarter of 2020 when the pandemic had yet to grip the globe.
So Corsair is facing tough year-over-year comparisons this year thanks to the impressive sales surge that it has enjoyed in the past couple of years. At the same time, the company is facing other headwinds in the form of surging inflation, broken supply chains that are leading to a bump in component and freight costs, as well as the Russia-Ukraine war, which has negatively impacted the video gaming industry.
These multiple headwinds explain why Corsair expects 2022 to be a difficult year. The company has guided for $1.7 billion in revenue this year at the midpoint of its guidance range, which would be a 10% drop from 2021 revenue of $1.9 billion. Adjusted operating income is expected to land between $100 million and $120 million, while adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) could range between $110 million and $130 million.
The company was earlier anticipating $2 billion in revenue this year, along with adjusted operating income of $195 million to $215 million and adjusted EBITDA of $205 million to $225 million. So Corsair has substantially scaled back its expectations for 2022, and that could weigh on the stock price in the near term.
A turnaround may be in the cards
Analysts are confident that Corsair's fortunes could turn around in 2023. They are expecting the company's revenue to increase 15.6% next year to $1.99 billion following this year's drop, while earnings could increase nearly 61% to $1.32 per share. What's more, Corsair's top and bottom lines are forecast to increase at a nice pace in 2024 as well.
CRSR Revenue Estimates for 2 Fiscal Years Ahead data by YCharts
There are a couple of reasons why it wouldn't be surprising to see Corsair regain its mojo next year. First, the company won't have to put up with tough year-over-year comparisons. Second, the secular growth opportunity in the gaming peripherals market and Corsair's healthy share of the same should lead to robust growth.
The company estimates that the gaming peripherals market could grow at an annual pace of 20% to 25% in the long run, driven by an increase in the number of gamers as well as upgrades by existing customers. DFC Intelligence estimates that the number of PC (personal computer) gamers could increase to 1.88 billion by 2025, compared to 1.77 billion last year.
According to another estimate, the global gaming peripherals market could hit nearly $7 billion in revenue by 2025, compared to $4.25 billion last year. Corsair is in a nice position to tap into this incremental revenue opportunity, as it controls 15% of the gaming peripherals market in the U.S. Meanwhile, Corsair also commands a 65% share of the video gaming memory market and a 45% share of the market for video gaming components.
As it turns out, Corsair has been gaining share at a nice pace in the memory and gaming component markets. This bodes well for the company, as sales of high-end PC gaming hardware are expected to increase to $45 billion in 2024 from around $32 billion last year, according to Jon Peddie Research.
So the growing demand for gaming hardware, peripherals, and components, along with Corsair's solid position in these markets, should pave the way for long-term growth at the company. That's why investors looking to buy a video gaming stock should have Corsair Gaming on their radars, especially considering its valuation.
The stock is trading at 18 times forward earnings and 0.92 times sales. The S&P 500 trades at 18 times forward earnings and 2.65 times sales, which means that investors are getting a good deal on Corsair Gaming stock, and they may want to consider grabbing this opportunity given its sunny long-term prospects.
