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This Under-The-Radar Gaming Stock Could Be A Meme Target

According to Wall Street, Corsair stock has plenty of upside potential – but shares are also heavily shorted. Wall Street Memes looks a bit closer at this apparent discrepancy.

Corsair Gaming stock  (CRSR) - Get Report has recently resurfaced in some of the main Reddit forums. The stock briefly became a potential target of meme mania in mid-June; received high volume of comments online (see below); but share price never quite lived up to the hype.

With elevated short interest and a recent uptick in popularity on WallStreetBets, could CRSR be ripe for a bullish attack?

Figure 1: WallStreetBets ticker sentiment on $CRSR

Figure 1: WallStreetBets ticker sentiment on $CRSR

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A brief intro on Corsair Gaming

Corsair Gaming is a Fremont, California-based gaming equipment and technology company founded in 1994 by Andrew Paul, the company's current CEO. It currently has more than 2,400 employees and a market cap of $2.8 billion.

The company has a production facility in Taiwan, where it manufactures and assembles various PC components, among other pieces of hardware. Its main competitors are multinational companies like Logitech  (LOGN) , Razer and Pegatron.

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The gaming market

According to data from Mordor Intelligence, the global gaming market is expected to grow to $257 billion by 2025. Much of this market is concentrated in the Asia-Pacific region, where gaming revenue is estimated at $147 billion in 2021, almost double the size of the North America market.

Also, according to Business Wire, gamers spent $4.5 billion on immersive games (VR or virual reality) in 2020. Another nascent gaming market that is on the rise is eSports, estimated to grow to $1.6 billion by 2024 from the current $1 billion.

Company’s fundamentals

Corsair seems to be riding the secular tailwinds in gaming. The company reported strong revenue growth in 2020 (see below). Worth noting, however, much of the top-line momentum may have been driven by the COVID-19 pandemic that boosted demand as people spent more time at home.

Most of the company’s revenue growth in the first quarter of 2021 has come from its creator peripherals business, at a rate of 132% year-over-year. But the larger gaming components and systems segment has not disappointed either, having posted solid growth of 52% year-over-year.

Figure 2: Corsair revenue by segment.

Figure 2: Corsair revenue by segment.

Beyond revenues, Corsair has been also improving profitability since 2018. Segment gross profit climbed from less than $200 million then to nearly half a billion dollars last year. Total segment gross margin moved nearly 10 percentage points higher in the past couple of years, to 30% in 2020. See below.

Corsair’s business model is fairly light on capital, with capex of $9 million accounting for only about 5% of cash inflow from operations. On the balance sheet, cash balance has progressively increased over the past few quarter to nearly 10% of total assets, while debt has declined.

Figure 3: Corsair gross margin by segment.

Figure 3: Corsair gross margin by segment.

Regarding valuations, Corsair’s P/E of 19 times versus an average P/E of 27 times in the gaming industry suggests that the multiple is not overly stretched. At least on the surface, this seems to be a rare case of decent business fundamentals combined with a share price that is discounted vs. the peer group.

What do Wall Street analysts say about Corsair?

According to Yahoo Finance, CRSR has a rating of buy leaning to strong buy. Analysts predict a share price target of nearly $47 compared to just north of $30 at last check, for 54% upside potential.

The most recent research note came from Barclays. The buy rating remained unchanged, due in part to the solid results in the first quarter of 2021, but the target price was lowered from $51 to a still respectable $47. Wedbush also has a buy recommendation on the stock, adopting an even more optimistic position: target price of $55, for upside potential of 82%.

Why is the company being heavily shorted?

What probably first caught the attention of Redditors was Corsair's current short interest of almost 20% (data by Yahoo Finance as of the end of Q2), considered very high by most standards.

The key reason for such high short interest is hard to pinpoint. One possibility is general market forces that have favored cyclical over growth tech stocks in 2021. Another possible reason could be insider selling, since several company executives have sold large quantities of CRSR in recent months.

Wall Street Memes’ take

It would be unfair to consider Corsair a “traditional” meme stock. The company’s fundamentals appear to be solid and well supported by favorable trends in the gaming sector. Growth opportunities seem plentiful, and margins have been heading in the right direction. On that basis, the bull case is justifiable.

This is not to say that CRSR will necessarily head higher from here. However, the combination of solid recent performance and heavy short selling activity might make this stock a prime candidate for a meme attack. Time will tell what happens next.

Twitter speaks

CRSR stock caught the attention of the Reddit crowd as short interest has remained elevated, despite Wall Street’s consensus upside potential of over 50%. What do you believe will happen to Corsair going forward?

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)