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Corsair Gaming Compels, But Don’t Ignore the Legitimate Bear Case

Measured against broader fundamentals, the narrative for Corsair Gaming (NASDAQ:CRSR) stock couldn’t be more intriguing.

A photo of the Corsair (CRSR) logo on the front of a building in California.
Source: Tada Images/ShutterStock.com

A computer peripherals and hardware company, Corsair delivers gaming-centric platforms that provide users with a much more immersive experience.

Considering how popular gaming already was, you don’t need much coaxing for CRSR stock.

However, the underlying business was also one that fortuitously benefitted from the novel coronavirus pandemic. As you know, when the Covid-19 crisis became a reality on our side of the planet, various governmental mandates cracked down on non-essential activities, which included traditional entertainment options like the box office or the ballgame.

Taking their place were home entertainment options, with the key players being streaming services and video games.

As USA Today pointed out, two-thirds of Americans or 227 million people play video games. During the pandemic, more than half of players (55%) reported increasing their gaming activities. Significantly for CRSR stock, “most players (90%) said they will continue playing after the country opens up.”

The Ipsos survey also noted that “video games were a source of stress relief (55%) and distraction (48%).” Reasonably, those who believe in the long-term narrative of CRSR stock can bank on this sentiment growing or at least sustaining.

As evidence, a recent medical journal pointed out that “Playing video games has had a positive effect on players’ perceived well-being during the COVID-19 pandemic. Games have provided an enjoyable means of maintaining social contact, and a stress relieving and mentally stimulating escape from the effects of lockdown.”

Still, CRSR stock has admittedly been disappointing. On a year-to-date basis, shares are down nearly 25% despite overall robust financial performances.

Unfortunately, in its most recent (second quarter) earnings report, Corsair missed consensus analyst estimates for earnings per share, delivering an EPS of 36 cents against a call for 39 cents.

Small potatoes, right?

CRSR Stock and Intermediate-Term Headwinds

At least if you talk to those optimistic about CRSR stock, they view the earnings miss as making a mountain out of a mole hill. In that respect alone, I can understand the point. But the criticisms extend beyond that. More worryingly, logistics impact from the ongoing Covid-19 crisis is rearing its ugly head again.

Per Benzinga’s Anusuya Lahiri, Corsair “experienced higher than expected logistics costs and expected them to remain elevated in Q3. Shutdowns from the ongoing pandemic in several large regions also negatively impacted the operations.”

To be fair, management expects the above headwind to be a temporary one. Thus, once the crisis clears, CRSR stock can start a positive trajectory, one that aligns with its fundamental storyline — or that’s the idea anyway.

Whether that pans out is an entirely different story. For one thing, you can never be comfortable about supply chains in any industry during the new normal.

As an example, inventory levels for used cars during end of 2020 implied a return to normalization soon. Now, the latest data suggests that used car prices are rising again and that they might get worse.

Of course, I don’t know about Corsair’s supply chain specifically. However, when management of any company says logistics-related impact will be a temporary headwind, you may want to add a buffer.

Second, the shipping crisis might not even end until 2022 — certainly, this CNN report isn’t exactly giving the most optimistic outlook.

Third, and most important, is the timing of the situation. If the shipping crisis is to be cured, it needs to be cured ASAP. With the winter shopping holiday around the corner, retailers need their products now.

Long-Term Thesis Still Viable

At some point, both the pandemic and its myriad business consequences will fade into the background. Either that or we’ll find some workaround solution.

Therefore, if you’re thinking that I’m being negative about the long-term scenario for CRSR stock, don’t. Video games and related accessories (assuming they’re popular) have a bright future.

At the same time, I’d like to offer some gentle pushback against the bullish idea that CRSR stock is a contrarian buy at this moment. It’s not so much that the earnings miss freaked out stakeholders or even necessarily management’s admission of logistics-related challenges. Rather, it’s that these same people watch the news.

Logistics for every industry looks particularly ugly — especially for those companies who are dependent on ocean freight like Corsair. Therefore, if you do end up buying CRSR stock, just be prepared to ride some choppy waters.

On the date of publication, Josh Enomoto 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.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

Article printed from InvestorPlace Media, https://investorplace.com/2021/09/crsr-stock-compels-but-dont-ignore-bears/.

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