Corsair Gaming (CRSR) is an industry leader in providing and innovating high-performance equipment for gamers and content creators.
The company’s high-end gaming gear enables anyone from casual gamers to dedicated e-sports professionals to perform at their best, while its streaming equipment empowers creators to create studio-quality content to share with their fans.
While Corsair completed its IPO one-and-a-half years ago, the company is not a new player in the market. Corsair has served the market for more than two decades, with more than one of its product categories maintaining a #1 U.S. market share position.
Corsair’s products are praised for their authenticity and high-quality engineering. Consequently, the company enjoys a loyal base of loyal consumers, which in my view, makes for a great competitive advantage in what is a very competitive market.
The PC peripherals market includes a bunch of other participants, including other publicly traded companies like Logitech (LOGI) and Razer (RAZFF), which also strive to innovate and capture market share. Therefore, Corsair’s strong brand is a terrific intangible asset.
Corsair’s shares have treaded lower for over a year now, which has prompted worries among investors. However, the company’s results have been rather robust, while the continuous share slide has squeezed the stock’s valuation to rather appealing levels. For this reason, I remain bullish on the stock.
Latest Results
Corsair’s latest Q4-2021 results came in rather strong, with net revenues coming in at $510.6 million, well above pre-pandemic Q4 levels, and within 8.2% Q4-2020’s record $556.3 million in which net revenues had increased by 70.4%. This led to the company ending 2021 with net revenue of $1.9 billion, an increase of 11.8% year-over-year.
Specifically, the Gamer & Creator Peripherals segment’s net revenues were $647.2 million, an increase of 20% year-over-year, while the Gaming Components & Systems segment’s net revenues came in at $1.26 billion, an increase of 8.1% year-over-year.
Net income came in at $101 million, or $1.01 per diluted share, compared to net income of $103.2 million or $1.14 per diluted share in the full 2020 year. On an adjusted basis, EPS was $1.45, versus $1.60 last year.
Note that Corsair’s business model can be quite cyclical, meaning that the company’s results can be easily affected by consumers’ purchasing power. Since the pandemic led to a massive boost in PC peripheral sales during 2020 due to the rise of the working-from-home economy, the slightly softer results in 2021’s results make total sense. Hence, seeing the company further growing its revenues last year is quite impressive.
Further, note that Corsair’s business model features razor-thin margins. As you can tell from the humble net income levels compared to the top line, net income margins can be easily compressed following a decline in revenues.
Due to an increase in expenses during the ongoing inflationary environment and the current supply chain challenges, Corsair’s gross margins declined from 27.6% to 23.9% year-over-year.
While this is somewhat worrying, I believe that the fact that Corsair’s bottom line remained positive despite softer gross margins is a testament to management’s cost management, and likely means that as soon as the cited challenges retreat, the company’s profitability should grow significantly based on its growing revenues.
Wall Street’s Take
Turning to Wall Street, Corsair Gaming has a Moderate Buy consensus rating, based on five Buys and two Holds assigned in the past three months. At $29.00, the average Corsair Gaming price target prediction implies 26.1% upside potential.
Conclusion and Valuation
For 2022, Corsair expects to deliver adjusted EBITDA in the range of $200 million to $225 million. At the stock’s current levels, Corsair is trading at a forward EV/EBITDA multiple of just above 10, which I find rather attractive considering the company’s strong brand value and potential to continue growing going forward.
In my view, Corsair Gaming is a quality company in the high-performance gaming equipment niche. The stock also appears to be rather fairly valued if not undervalued at the current forward EV/EBITDA multiple. For this reason, I remain bullish on the stock.
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