Corsair Gaming (NASDAQ:CRSR) stock had a bad day Tuesday as it fell 6.4%.
The bulls were able to defend it a bit and closed off the lows. It is often a good sign when they avoid closing at the worst part of the day.
What is bad is that this happened on a very bullish overall market day.
Nevertheless, I bet there is value below so it is worth exploring long term entries into CRSR stock.
A Falling Knife Worth Catching
Trading stocks that move this fast is a daunting task. On the way up they don’t rest. And on the way down they look like they are falling into the abyss. If we are not careful we could lose a few digits playing the hero too soon.
I will start with my conclusion first to get it out of the way. CRSR stock is a falling knife worth catching. The method by which investors do it can vary, and the timing is important. They say that they don’t ring bells at tops and bottoms. Luckily, we have charts to consult, so we don’t need bells much.
Investors reacted negatively to the latest earnings report that management delivered. The news wasn’t bad, yet the reaction was bearish because of wrong expectations. The company grew revenues and gross profits each 24% over this time last year. Traders wanted more, so clearly their expectations were out of whack with reality.
There were a few weak points like operating income was down 4.5%. However, offsetting that was a 23% increase in net income. These are not weak statistics and they don’t warrant a large stock drop.
CRSR Stock Has Substance
Clearly the focus was on the headline that they “missed” estimates. One investor’s hissy fit is an other’s opportunity. Since nothing was flagrantly wrong with the report I would consider this a buying opportunity.
The temper tantrum that investors are having shall pass. The fundamentals still tell a good story. It has a modest 18 price-to-earnings ratio and only 1.5 price-to-sales. There isn’t a lot of hope inside the stock price today.
Moreover, the income statement shows strong improvements. They more than doubled their revenues to $1.9 billion in just four years. That’s hardly reason to sell the stock in panic.
Unfortunately for CRSR stock bulls, it just lost several important necklines that it needed to hold. This usually means that there could be more downside in its near term. Against that goes the fact that there is a big cluster support from last fall. Specifically near $24 per share. Even if that fails, there are more buyers lurking $2 lower.
I’m confident that this stock will find footing as long as the overall markets are holding up.
In June, Corsair spiked to more than $42 per share and on heavy volume. I would chalk that up to action that usually comes from Reddit investors.
Meme stocks are all the rage led by GameStop (NYSE:GME) and AMC Entertainment (NYSE:AMC). Such a spike is a reminder that extreme situations are almost always wrong, and they need to correct. They overshot to the upside, and they could easily overshoot to the downside.
Therefore, as much as I like the opportunity of CRSR stock I must use caution.
Going all in is absolutely the wrong thing to do. This is especially true when the indices in general are near all-time highs. We have to consider the fact that we may be going into a taper cycle from the Federal Reserve. This means that equities will lose a huge tailwind that they’ve had since 2018.
On the date of publication, Nicolas Chahine 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.
Nicolas Chahine is the managing director of SellSpreads.com.