Corsair (NASDAQ:CRSR) has some two tough headwinds to overcome. First, CRSR stock is a former meme stock carried on a ride by Reddit’s WallStreetBets earlier this year. At the time though, Corsair had strong fundamentals to justify the rally. For much of the year, Corsair has lost momentum.
Corsair staged one more meme-induced rally in June by trading as high as $43 intra-day.
Corsair is also current experiencing a supply shortage, it’s second headwind to deal with. The company warned investors in mid-Oct about the challenges it must work through.
Dim Outlook for CRSR Stock
Corsair’s Chief Executive Officer, Andy Paul, issued a preliminary Q3 report and updated its outlook. On Oct. 14, Corsair highlighted its exceptional results from 2020. It said that it sees 2021 as a strong growth year. Corsair will build on the acceleration of gamers and streamers buying gear for the first time.
The CEO hinted that the stock priced in years of strong growth expectations before its initial public offering in 2020. For the rest of 2021, net revenue is constrained by global logistics and supply chain issues. Paul said the “lack of affordable GPUs in the retail channel” is hurting its business.
Corsair is not alone in issuing a weak outlook. On Oct. 25, Logitech International (NASDAQ:LOGI) posted quarterly results that sent its stock down into the low $80s. At its height, LOGI stock traded at $140.17. Logitech posted revenue growing by just 4% Y/Y.
Logitech also posted an adjusted gross margin decline, from 45.7% to 42%Y/Y, which should concern Corsair investors. Logitech spent more on promotions, had higher logistical rates, product costs and increased inventory reserves.
Premium Gaming Strength
Logitech offers middle to high-end peripherals for computer users, especially corporate ones. Corsair’s product line more niche with higher-end products. It caters to the PC gaming market. Its headsets, mice, keyboards and other peripherals are top-end products that command a high price.
Corsair extended its product strength in performance and speed by introducing DDR5 memory on Oct. 27. Gamers often choose the Corsair brand first. Since the latest computer specifications will need DDR5, Corsair’s Dominator Platinum and Vengeance DDR5 memory should lift revenue.
The gaming company’s partnership with Snap (NYSE:SNAP), through Corsair’s Elgato unit, will bring augmented reality to the PC and Mac. Elgato is a provider of hardware and software for content creators and streamers. The two firms will bring AR Snap Lenses for the EpocCam app.
To sustain its lead over other gaming PC suppliers, Corsair partnered with Ubisoft (OTCMKTS:UBSFY). The company wrote, “PC players will be able to experience Far Cry® 6’s action beyond the screen through their CORSAIR iCUE software-compatible components and peripherals.” Corsair’s peripherals are immersive with game titles. Deals like this will widen its lead from firms like Razor or Alienware.
Valuation
Bears have a big bet against CRSR stock. The short float is around 13%. This negative view is dangerous. Valuations are low: the price-to-sales ratio is only around 1.35 times. Still, mid-tier PC supplier Dell (NYSE:DELL) trades at around 0.9 times sales. HP Inc. (NYSE:HPQ) trades at a P/S of 0.6 times. HPQ stock bounced from the $26 low last month and still trades at valuations below that of CRSR stock.
On Wall Street, the price range target is $26.00-$40.00 (according to Tipranks). According to Stockrover, CRSR stock has a mixed quant score. It is a quality stock with a high return on invested capital. But its value score is lower than that of DELL and HPQ stock. Corsair will likely sustain a higher valuation because it sells top-end gaming gear and computers.
Risks
Corsair’s meme status hurt the mid-term prospects of the stock. Speculators who overpaid for shares will sell the stock the moment it rallies again. Bearish short float is unusually high, too.
The Covid pandemic is getting closer to an end. Vaccinations are so far proving to protect people against the deadly delta variant. People who spent over 18 months mostly at home may want to go outside more often. This would cut back on time spent playing games or watching players stream games online.
Your Takeaway
Corsair offers investors the occasional rally for a modest return, but he short-term prospects are cloudy. In the next twelve months, shares may struggle. As the company works past logistical issues and supply constraints, the stock will rebound.
Corsair offers investors a good balance of growth and value in the computer hardware gaming space.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.