Why Investors Should Bet on CRSR Stocks for PC Gaming
Aside from extreme volatility earlier this year, Corsair game (NASDAQ:CRSR) traded in a narrow range between $ 26 and $ 30.
During the last publication of its quarterly results, the CRSR share tried, unsuccessfully, to exit a downtrend. More recently, the premium gaming computer supplier has encountered technical resistance.
Unless Corsair releases a more compelling quarterly report, short sellers will have the upper hand. They have a short float position of 11.7% against the stock. Before justifying a purchase on Corsair, what are the main headwinds this cheap title faces?
Selling pressure on CRSR share
In the second quarter, Corsair achieved sales of $ 473 million and EBITDA of $ 52 million. Revenue increased 24.3% from a year ago, driven by strong device sales, which increased 40.9% to $ 155.2 million. The company underperformed expectations due to supply chain constraints and logistics issues.
CEO Andy Paul highlighted the company’s investment in research and development, infrastructure and marketing. This led to the launch of its first camera. With 75 new products launched to date, Corsair covers many new areas of the PC market.
Investors don’t see it that way.
Corsair must repay its debt. In the second quarter, it took advantage of its higher cash flow to pay off an additional $ 25 million in debt. This is strategically important since rate hikes in the next quarter will increase the cost of debt.
Cultural changes in the gaming market are an opportunity for Corsair to increase its total addressable market. For example, the company will increase its market share in the console, PC and mobile markets (such as shown on slide 28). By dominating dozens of product categories, consumers will prioritize Corsair’s peripheral solutions.
The low valuation of Corsair shares is a chance for value-oriented investors to build up a position at cheap prices. Conversely, its forward price / earnings ratio of 13.8 is higher than that of HP (NYSE:HPQ) Where Dell (NYSE:DELL). These PC makers are trading at a multiple of 7.4x and 11.26x, respectively. As Corsair and the industry overcome supply constraints, its profit margin will improve.
Sea freight costs increase logistics costs (per slide 20). The shipping industry will adapt by increasing the supply. The general demand for products manufactured abroad will decline for price sensitive products. In the gaming market, Corsair has superior product quality and performance compared to the competition. Customers are willing to spend more on the company’s gaming components and systems.
Growth in the second half of the year
CFO Michael Potter acknowledged that the second quarter is generally weak seasonally. It follows with a stronger second half of the year. Prospects are not a guarantee. Customers face huge shortages of high-end computer chips and graphics cards. This increases the price of gaming systems in the range of $ 2,000 to $ 4,000.
Because it is difficult for them to build, Paul said sales channels and suppliers adjusted.
As noted above, CRSR shares trade at a modest 6% discount to fair value. Thanks to its strong profit margins, the share obtains an 88/100 on quality.
As an old stock meme on Reddit r / WallStreetBets, Corsair could briefly hit $ 40. In June, the markets thought these speculators were gone, to witness the frenzied buying that month. Nonetheless, the dynamic investors in the sub-forum may have lost interest in the stocks itself and in Corsair.
On Wall Street, four analysts offer a 12-month price target. The average price target is $ 39 and ranges from $ 31 to $ 45, according to Tipranks.
Your takeaway meals
Investing in PC gaming stocks is a test of investor patience. The stock can move nowhere for months. As the markets recognize the increase in profits and higher sales, more investors will accumulate in Corsair shares. The tech index trades at a premium in general, with Corsair reversing the trend.
Value investors should consider building up a position at current levels. Selling puts or buying long term calls is another way to bet on the upside potential of this undervalued company.
As of the publication date, Chris Lau does not have (directly or indirectly) any position in any of the stocks mentioned in this article. The opinions expressed in this article are those of the author, submitted to InvestorPlace.com Publication guidelines.