Corsair Gaming’s Inc. (NASDAQ: CRSR) Growth May Be Too Optimistic – Fundamental Analysis

Corsair Gaming, Inc. (NASDAQ: CRSR) is a leading global developer and manufacturer of high-performance equipment and technology for gamers, content creators and PC enthusiasts.

Corsair groups the products into two categories:

  • Gaming and designer devices
  • Game components and systems
NASDAQ: Display of CRSR promotional products. Extract from the first quarter investor presentation

Corsair ships to over 75 countries and its equipment is sold to retailers including Amazon ( NASDAQ: AMZN ), Best Buy ( NYSE: BBY ), JD.com ( NASDAQ: JD ), MediaMarkt and Walmart ( NYSE: WMT ).

In 2020, sales to the Americas, EMEA and Asia-Pacific represented 45.5%, 36.7% and 17.8% respectively. Global distribution offers growth opportunities as well as exposure to the risks of international markets. One possible downside is that emerging markets can adopt policies that favor domestic manufacturers and engage in product replication with a lower margin.

Compared to the average non-Corsair product, Corsair computer cases, cooling solutions, power supplies and high performance memory were priced 29%, 54%, 31% and 4% higher respectively . This positions Corsair as a premium brand, but as competition puts pressure on the gaming market, Corsair could see those prices converge towards fair value. Unless they build the brand enough to give them long-term pricing power.

In the gaming peripherals market, Corsair estimates a US market share of 15.5% in December 2020 over twelve rolling months, according to NPD Group. The company also sees itself as a clear leader in the gaming PC components market. According to NPD Group, the US market share in December 2020 increased to 40.7%

Market capacity

An estimated 2.8 billion gamers globally across all devices spent more than $ 174 billion on games in 2020, an amount that has grown at a compound annual growth rate of 12.2% over the years. last two years. Keep in mind that 2020 has been a bumper year due to the pandemic and growth rates could be upward bias.

Corsair aims to capture a growing share of the growing gaming and streaming market, estimated at over $ 36 billion in 2019 by Jon Peddie Research.

Digging deeper, we found that total US computer manufacturing orders are around US $ 24 billion and have increased during the pandemic.

New orders from manufacturersUS Census Bureau, New Orders from Manufacturers: Computers and Electronics [A34SNO], taken from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/A34SNO, June 29, 2021.

It is good to ask whether these levels are sustainable, and if so, what motivates them? Is it gaming, streaming, or maybe the new hybrid workplace? If the trend is not in gaming related needs, it may have a negative impact on Corsair’s future growth.

Main risks

The main risk factors are competition, market saturation and technological advances which can make some products obsolete – like a broad adaptation of cloud computing that will allow cloud-based games at lower prices.

Income is tied to waves in games, and depends on innovation in gaming equipment, streaming and socializing technology, and high-quality game releases that will drive the purchase of equipment. For investors who follow this market closely, it may be beneficial to ask, “Are there any games on the horizon that will really hit the mark?”

Corsair’s sales seem to follow a seasonal pattern – that’s why it’s always best to assess financial performance on a twelve-month basis. Due to seasonality, the income of the second calendar quarter is usually the lowest.

Corsair also has debt totaling $ 294 million. The excess cash flow from the pandemic has enabled the company to repay US $ 28 million and further commits to repay US $ 72 million in additional debt in 2021. This will significantly reduce fixed costs for the company. and will make it a less risky investment.

NASDAQ: CRSR Debt and Cash Levels Q1 2021

Analysts’ estimates

Corsair defied analysts’ forecasts by releasing its first quarter results, which were ahead of market expectations. Corsair Gaming significantly exceeded revenue expectations, with sales reaching US $ 529 million, or 17% above indication.

We have compiled the latest forecasts from statutory analysts following these results.

profit and revenue growthNasdaq: CRSR Profit and Revenue Growth, June 2021

Based on the latest results, the consensus of eight Corsair Gaming analysts is forecasting revenue of $ 2.07 billion in 2021, which would reflect a reasonable 7.4% sales improvement over the past 12 months.

In addition, the company is expected to grow 10% on an annualized basis.

Compare that to other companies in the industry, which are expected to increase their revenues (in total) by 4.5% per year.

Conclusion, price and value

By reading analysts’ estimates and trusting management’s forecasts, we get a intrinsic valuation for Corsair of about US $ 80 per share.

However, taking a more conservative approach and including more risk factors in our analysis, we calculate an intrinsic value of 38 USD per share. The difference is mainly due to the use of lower margin estimates.

Analysts’ price targets, which is a whole different story, are unchanged and hover around US $ 46.6 per share. Currently, the most bullish analyst values ​​Corsair Gaming at US $ 55 per share, while the most bearish the price at US $ 37 per share.

All of these analyzes conclude that the current market price diverges from the intrinsic value of the stock, and it always pays to try and think about why this may be the case!

In fact, there are only three possible scenarios:

  1. Analysts are wrong and the market price is fair
  2. Market price is wrong and analysts are right
  3. Both parties are wrong, but one is closer to the right price

What we’re trying to illustrate is that being right against the market is really hard, and we have to have good reasoning beforehand, if we think there is an opportunity to be exploited.

One possible assumption is that the market is currently tired of post-pandemic extrapolations for growth and will wait to see longer-term performance before increasing its position in Corsair.

With that in mind, we wouldn’t be too quick to draw a conclusion on Corsair Gaming.

Long-term profitability and a complete overview of the business are far more important than next year’s profits. If you’re interested, you should see our latest review for Corsair Gaming.

In addition, you should also educate yourself about the 1 warning sign we spotted with Corsair Gaming.

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Simply Wall St analyst Goran Damchevski and Simply Wall St do not have a position in any of the companies mentioned. This article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents.
*Interactive Brokers Ranked Least Expensive Broker By StockBrokers.com Online Annual Review 2020

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