Buy This Undervalued Stock Before Everyone Else Does

Corsair Gaming (NASDAQ:CRSR) has benefited from a surge in new upgrades from players in the video game market over the last few years. The computer peripherals and hardware company achieved an annual revenue run rate of $2 billion through the first half of the year, which is nearly double the $1.1 billion generated in 2019. Guidance calls for 2021 revenue to increase between 12% and 23% over 2020. 

These expectations look very strong on top of the 55% growth in 2020, when the stay-at-home environment was causing engagement with video games to reach unprecedented levels. But over the long term, management sees more growth from market share gains in an expanding business for gaming peripherals. 

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Analysts see a growing stream of profits over the next few years, with the consensus estimate calling for Corsair to report earnings per share of $1.79 in 2021. Based on Corsair’s leading position in a growing gaming hardware market, the stock looks undervalued at a trailing price-to-earnings ratio of 17. At a current share price of $27.75, the P/E drops even lower when comparing it to the 2022 EPS estimate of $1.91.  

Near-term uncertainty related to supply chain issues is one reason the market doesn’t like Corsair Gaming right now, but secular tailwinds in the industry could push this stock significantly higher over the next three to five years. 

Why the stock is undervalued

The pandemic is causing higher transportation costs and product shortages across many industries. Despite these disruptions, Corsair delivered great results last quarter, with revenue up 24% year over year. But revenue came in slightly below the consensus analyst estimate, which led to a post-earnings sell-off. 

Another issue that is pressuring the stock price is that much of Corsair’s sales during the pandemic came from lower-priced products. The company is known for its higher-priced premium gear, where it commands a leading market share. However, these higher-priced products are in short supply right now, which likely contributed to the revenue miss last quarter.

Why investors should expect more growth

The supply shortage might not ease until next year, so it’s possible Corsair’s 2021 revenue growth could come in at the lower end of management’s guidance range. On the positive side, management reported during the second-quarter earnings call that supply for higher-priced products was already starting to improve. 

Looking beyond 2021, the supply constraints are only increasing the likelihood of tremendous pent-up demand over the next few years. There are more people playing games and broadcasting their gameplay on streaming platforms than before the pandemic. Average concurrent viewership on Amazon‘s Twitch grew 28% year over year in the second quarter, according to Logitech‘s Streamlabs. It’s no surprise that Corsair Gaming’s creator peripherals segment, including sales of lighting and webcams…