GPRO - Corsair Gaming Should Trade Like GoPro

2023-03-16 10:40:39 ET

Summary

• GoPro was once a hype stock.
• But investors found out it was simply a derivative of the camera market.
• I believe Corsair is simply a derivative of the gaming market.

Corsair Gaming ( CRSR ) is worth more than 2x GoPro ( GPRO ) despite the latter having better gross margins and a similar revenue profile.

The knee-jerk reaction might be to assume GoPro is undervalued, but after being a public company for nearly a decade, investors have had plenty of time to digest GoPro stock.

Corsair on the other hand has only been public since 2020 but has received buzz from the meme trade and a quick search of YouTube reveals several channels that could be described as pumping the stock.

The same was true about GoPro.

Veterans of investing remember when GoPro was one of the hottest IPOs of 2014 when the stock went from $24 to over $85.

Needless to say, it's been downhill ever since.

That leads us to Corsair. The company does have a slightly more diversified product offering than GoPro, but the gross margins are actually worse.

Obviously over the past year, margins for most manufactures have slipped largely due to inflationary pressures on shipping, raw materials and labor. It's likely things stabilize, if not improve in 2023 and beyond - but this is pretty well known by investors and likely priced into shares to a certain degree.

Worse for Corsair is the fact the company does have a more diversified product offering, however the gaming component and systems is around 2x larger than the peripherals business - but has even worse margins.

These gross margins just simply aren't attractive enough when you're buying what I'd call a derivative of the gaming market. It's exactly the same story investors have already seen play out with GoPro being a derivative of the camera market.

The fact is, if Corsair is pumping out the Gaming Component sales - virtually every buyer is pairing that with a product from either Advanced Micro Devices ( AMD ) or Nvidia ( NVDA ). If you're bullish Corsair - you might as well just buy the chipmakers.

The total return illustrates this:

From a valuation perspective Corsair is still wildly overvalued despite the shares falling 11% over the past year.

Source: Seeking Alpha

Corsair is projecting $1.35B to $1.55B of revenue in 2023 with the midpoint being just high single-digit growth over 2022. However Wall Street is expecting EPS to go up 227% - which would still make Corsair's forward P/E over 27x.

Seems like Corsair has to execute on increasing margin, keeping costs under control and driving revenue growth just to reach a 27x multiple.

Needless to say, given the macro environment it might be a challenge given the fact Corsair's products are largely discretionary.

It seems like the path of least resistance is actually down for Corsair, as the company could knock things out of the park and still be overvalued.

The good news is Corsair has plenty of cash and positive operating cash flows, but so does GoPro and the latter is buying back up to $100M of its own stock, while Corsair diluted shareholders to the tune of $75M last year.

Conclusions

Corsair doesn't deserve a multiple well above a company like GoPro. That means Corsair is overvalued by at least 30% given the P/S multiple is 31% higher and P/E multiple is 37% higher. That means shares of Corsair would be attractive under $12/per share. It also means multiple expansion is likely going to be challenging given the valuation is already rather rich.

For further details see: