GPU price normalization will be the catalyst for Corsair Gaming (NASDAQ:CRSR)

After months of shipwreck, Corsair Gaming, Inc. (NASDAQ: CRSR) is finally taking a break, but it has yet to reverse the downtrend.

However, earnings growth coupled with an improving balance sheet at an attractive valuation might just be the winning combination the company needs.

Check out our latest review for Corsair Gaming

Fourth quarter results

  • Non-GAAP EPS: $0.35 (beaten by $0.10)
  • Income: US$510.6 million (beaten by US$13.66 million)
  • Revenue increase: -8.2% over 12 months

Orientation 2022:

  • Income: US$1.9B-US$2.1B vs US$2B consensus
  • Turnover in 2025: $3.5 billion

Founder and CEO Andy Paul Noted that despite the headwinds of 2021, the company launched 141 new products and increased the number of product lines to 30.

Reflecting on the shortage of high-end graphics cards, Paul estimates that around 10% of natural demand for Corsair products has been dampened due to gaming enthusiasts holding back their purchases. This could lead to increased demand as GPUs return to MSRP prices in the near future.

At the same time, Corsair signed a reseller agreement with Digital Motorsports (subsidiary of ESE Entertainment). As a budding motorsport gaming category leader, Digital Motorsports will add Corsair products to its platform.

A look at the Corsair Gaming review

With a median price-to-earnings (or “P/E”) ratio of nearly 16x in the US, you could be forgiven for feeling indifferent to Corsair Gaming, Inc.’s P/E ratio of 16.2x. However, we are surprised to find that the stock is now almost 70% undervalued based on our discounted cash flow valuation model.

Corsair Gaming has certainly been doing a good job lately, as its profits have grown more than most other companies. Many may expect the strong earnings performance to decline, which has kept the P/E from rising. If you like the company, you’re hoping it doesn’t so you can potentially buy shares when they’re not quite in favor.

NasdaqGS: CRSR Price Based on Past Earnings February 9, 2022

Want a full picture of analyst estimates for the business? Then our free report on Corsair Gaming will help you find out what’s on the horizon.

What do the growth indicators tell us about the P/E?

Corsair Gaming’s P/E ratio would be typical of a company that is only expected to see moderate growth and, more importantly, perform in line with the market.

If we look at the last year of earnings growth, the company posted a substantial 61% increase. However, the last three-year period has not been so significant overall as it has failed to deliver any growth. Therefore, it is fair to say that earnings growth has been inconsistent recently.

Looking ahead, EPS is expected to grow 6.3% annually over the next three years, according to the eight analysts who track the company. This is shaping up to be significantly lower than the growth forecast of 11% per year for the market as a whole.

In light of that, it’s curious that Corsair Gaming’s P/E is in line with most other companies. It seems most investors are ignoring the somewhat constrained growth expectations and are willing to pay for exposure to the stock. Yet restrained demand due to imbalances between supply and demand for computer components could skew this picture.

The essentials on the P/E of Corsair Gaming

We would argue that the power of the P/E ratio is not primarily a valuation tool, but rather to gauge current investor sentiment and future expectations.

Still, we should note that the stock has an exceptionally high short interest at over 30%. In the case of the positive catalyst, this could be a tipping point for a short squeeze, as investors still remember similar situations with Game Stop or AMC Entertainment Holdings. However, compared to some of these short compression examples, we should note that Corsair Gaming has a healthier balance sheet, as the debt-to-equity ratio has decreased. Given the latest earnings report, we advise you to follow the GPU sales trend to anticipate the potential spike in Corsair product sales.

It would help if you always thought about the risks. Concrete example, we spotted 2 warning signs for Corsair Gaming you should be aware.

If these the risks make you reconsider your opinion of Corsair Gamingexplore our interactive list of high-quality stocks to get an idea of ​​what else is out there.

Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position at any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials.

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