After a crushing year for the markets, there are a lot of good deals for the taking. PayPal Holdings (PYPL -1.14%) and Corsair Gaming (CRSR 1.74%) were beaten down last year for slowing growth, but after reporting better-than-expected financial results for the fourth quarter, these stocks are outpacing the broader market.
Data by YCharts.
PayPal and Corsair Gaming are up 11% and 30%, respectively, year to date, easily outpacing the 8% return of the S&P 500 index. The good news is that these stocks are still trading at conservative valuations. Let's look at what's driving these companies' solid performance right now, so you can decide if they are right for your portfolio.
1. PayPal
PayPal has 435 million customer accounts on its platform. Lower retail spending and reduced e-commerce growth were major headwinds for the company's revenue last year. But e-commerce isn't done growing by a long shot -- eMarketer estimates e-commerce sales to reach over $7 trillion in the next few years.
While growth hit a speed bump last year, the company focused on driving higher user engagement with its payment apps to gain market share at checkout. Despite increasing competition, its digital wallet is still the most widely accepted. In North America, 79% of retailers accept PayPal, up from 76% in 2021, according to Digital Commerce 360.
Moreover, tighter control of non-transaction-related expenses allowed more revenue from transaction fees to drop to the bottom line. The company's adjusted operating profit margin improved nearly 3 percentage points, which drove an 11% year-over-year increase in adjusted earnings per share (EPS) in the fourth quarter, outpacing the 9% increase in revenue on a currency-neutral basis.
Over the last three years, PayPal has continued to increase its customer accounts and transaction volumes, which has raised revenue by nearly 50%.
PYPL revenue (quarterly) data by YCharts.
PayPal is seeing strong growth from its buy now, pay later service. The number of customers using this feature more than doubled last year.
PayPal has created a Swiss Army knife of a mobile app that offers just about everything from bill paying to personalized deals from merchants. This positions the company for more growth when e-commerce picks up again.
Even after the 13% return year to date, the stock is still trading at a conservative price-to-earnings ratio of 16. That looks too low, considering management's guidance that calls for adjusted EPS to increase approximately 18% over 2022.
That implies more operating leverage in the company's non-transaction-related expenses. Improving profitability makes this top digital payment stock a great buy.
2. Corsair Gaming
Over 1.7 billion people are casual PC gamers, according to Statista, and about a tenth of those are regular players. This growing market is a huge opportunity for Corsair Gaming, one of the leading brands of computer peripherals.
Corsair grew revenue about 25% per year in the four years leading up to 2021. It experienced strong demand through the pandemic, with players buying up new gear to play games at home. But as the economy reopened and inflation picked up last year, the business stalled.
Demand is starting to return after a sluggish year. In the fourth quarter, revenue grew 27% over the previous quarter. Demand for gaming accessories was strong following new chip hardware releases in the fourth quarter from Nvidia and Advanced Micro Devices.
CRSR revenue (quarterly) data by YCharts.
Corsair also sells power supplies and memory chips that players usually buy when they upgrade their chip hardware, so strong demand for the latest processors can be catalysts for sales of keyboards and gaming controls. Graphics cards are becoming more plentiful at retail after a year of severe shortages, and that is playing into Corsair's hands.
Moreover, a strong slate of new game releases this year should drive demand for hardware and accessories. On that note, Wall Street analysts currently expect Corsair to report revenue growth of 7% in 2023, which is consistent with management's guidance. Analysts also forecast adjusted EPS improving to $0.64 this year, up from $0.18 in 2022.
Over the next five years, the gaming peripherals market is expected to grow about 8% per year, according to Expert Market Research. Corsair should grow its earnings much faster than that, given it will be rebuilding its profitability levels after reporting a loss of $60 million, or $0.63 per share, last year.
The stock currently trades at 13 times its previous peak profitability, when Corsair earned over $100 million in the 12 months ending in June 2021. With the stock up sharply off its recent lows, this could be the last chance investors have to buy it this cheap.
