Corsair Gaming (NASDAQ: CRSR) is a global leader in providing and
innovating high performance gear for gamers and content creators.
The company’s high-end gaming gear empowers anyone from casual gamers to committed e-sports professionals to perform at their best, while its streaming gear allows creators to produce studio-quality content to
share with the world.
Despite the company completing its IPO just over a year ago, Corsair is not a new player in the market. The company has served the market for more than two decades, with several of its products upholding a No. 1 U.S. market share position.
Due to its brand authenticity and reputation for high-quality engineered products, Corsair has formed a passionate base of loyal customers, which in my view, is one of the company’s most significant competitive advantages.
The PC peripherals market is certainly competitive, with plenty of other participants. While fragmented, it includes other publicly traded companies such as Logitech (LOGI) and Razer (RAZFF), which also enjoy easy access to capital. Hence, Corsair’s strong brand is a great intangible asset.
Since its IPO, Corsair’s stock performance has been rather underwhelming, treading gradually lower for over a year now. That said, the company’s results have been rather solid, while the ongoing share decline has compressed the stock’s valuation to quite attractive levels. For this reason, I am bullish on the stock.
Latest Results
Corsair’s latest Q3 2021 results came in rather mixed, with net revenues declining 14.4% to $391.1 million. Specifically, the Gamer and Creator
peripherals segment’s net revenue was $139.3 million, a decrease of 13.8% year-over-year. Gaming components and Systems net revenue also declined by 14.8% year-over-year to $251.9 million.
Net income came in at $1.8 million, or $0.02 per diluted share, compared to net income of $36.4 million in the same period last year, or $0.40 per diluted share. On an adjusted basis, EPS was $0.16, versus $0.54 last year.
There are two points to be made here. Firstly, Corsair’s business model can be quite cyclical and subject to consumers’ purchasing power. With the pandemic boosting PC peripheral sales last year amid the working-from-home economy’s emergence, a decline in sales this year makes quite a bit of sense and should not be taken with a negative attitude.
The second thing to note is that Corsair’s business model is subject to razor-thin margins. As you can tell from the tiny net income levels relative to the top line, net income margins can be easily squeezed amid revenue declines, and even turn negative. For context, the company’s gross margins during the quarter were 25.9%. Hence, the company really needs to scale sales if it is to achieve even remotely richer margins.
Valuation
While all this may sound concerning, and to some extent it is, Corsair’s shares have recently reached a point that is rather hard to ignore. For FY 2021, Corsair expects to achieve adjusted EBITDA in the range of $190 million to $205 million.
Assuming the ongoing hurdles in the sourcing and shipping environment improve next year, Corsair’s EBITDA margin should grow. Analysts expect Corsair to achieve an EBITDA of around $225 million next year. At the stock’s current levels, Corsair is trading at a forward EV/EBITDA multiple of around 9.2, which I find rather attractive.
Simultaneously, due to its strong brand power and attractive valuation, I wouldn’t be surprised if Corsair ended up being an appealing acquisition target.
However, since the company has not paid a dividend yet nor has it announced any intention of doing so, investors are unfortunately not compensated while betting on Corsair’s investment case, which is something to consider regarding one’s overall margin of safety.
Wall Street’s Take
Turning to Wall Street, Corsair Gaming has a Moderate Buy consensus rating, based on three Buys and three Holds assigned in the past three months.
At $32.50, the average CRSR price target implies 48.7% upside potential.
Disclosure: At the time of publication, Nikolaos Sismanis did not have a position in any of the securities mentioned in this article.
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