Corsair Gaming, based in Fremont, California, has been seeing their shares plummet since mid-2021. After a major beneficiary of secular gaming trends in the past several years, 2022 has been filled with difficulties, and Corsair has struggled to maintain its growth.
Even if Wall Street's business is under a new market scrutiny, it remains optimistic about Corsair owing to its attractive valuation.
Figure 1: Is Corsair Stock Still A Buy After Preliminary Results Poor Q1?
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Preliminary Results for Q1 Have Been A Sharp Drop
Corsair Gaming's stock has been released shortly after its preliminary quarterly results. Even the limited data from Corsair was enough to cause a sour reaction on Wall Street.
The greatest concern is a significant revenue slowdown. Corsair's revenue fell by 28% from the same quarter last year, and the majority of this reduction was based on a short-term decrease in European consumer spending.
Corsair, according to CEO Andy Paul, does not anticipate any YoY growth. He claims that last year's Q1 was unusually strong due to stimulus checks and declining demand due to product shortages.
According to reports, the cost of GPUs may decrease as availability levels rise. That, in turn, means PC gaming activity may resume in the second half of the year.
Jim Cramer, a Mad Money host, did not fail to track Corsair's performance decline; he said that their slowdown is indicative of difficulties that exist throughout the gaming industry.
A Major Issue has Been Addressed
Corsair's stock has decreased more than half in a year, but it does not seem like the company is being run poorly. It is true that the company's performance in 2020 and the first half of 2021 came on the heels of secular tailwinds caused by the COVID-19 epidemic. People spending more time at home provided a significant boost to demand in the gaming industry.
Corsair has improved profitability since 2018, despite a capital-light calculation. Its CAPEX of $9 million represents less than 10% cash inflow from its operations. It has also managed to reduce its debt in the past several years.
Corsair's current financial performance isn't the main driver of investor skepticism. Instead, it's a deteriorating confidence in the business model that Corsair has been investing in. There's a lot of risk that gaming-tech advancements (especially cloud gaming) might negatively impact the company's business model.
Gaming companies like NVIDIA, Intel, and Google are now leading companies in cloud gaming; the market has steadily increased, and is expected to reach a CAGR of almost 60% by 2024.
Is the CRSR still available?
After the last two company earnings came in below expectations, analysts have their price targets on CRSR, but a bullish tone still prevails. Corsair is a "strong buy" with a nearly 70% upside potential based on the current share price of $16.44 (at last check).
More of this optimism is centered on the company's excellent valuation. Corsair is at a P/E ratio of 12x, which is 35 percent below the industry average for technology hardware, storage, and peripherals.
Despite the fact that not the valuation appears to be encouraging new investors to purchase shares in Corsair. Many observers believe the company is falling behind the rest of the gaming industry.
Corsair's net income spans between 2020 and 2021 has been increased in research and development to keep pace with the latest industry trends. It is possible that further improvement in R&D spending would help alleviate some investors' worries about the company's future trajectory.
It's up to individual investors to choose whether Corsair is a clever value play or a long-term losing strategy right now.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. The article may also contain affiliate links. These partnerships do not influence editorial content. Thanks for the support of Wall Street Memes)