In the wake of the onset of the novel coronavirus, video-game accessory companies like Corsair Gaming (NASDAQ:CRSR) have largely flourished. And with that, CRSR stock holders have done well in the long term — but recently the share price declined.
Some folks might be tempted to dump their shares and take profits if their positions are still in the green. However, I feel that it would be a mistake to jump ship just because the price action has gone south.
There’s an old saying that the markets are never wrong. Yet, as a contrarian investor, I firmly believe that there are times when market sentiment doesn’t comport with reality.
And when sentiment doesn’t match reality, that’s where opportunities present themselves. So, let’s investigate what recently happened to the Corsair Gaming share price — and just as importantly, why it moved the way it did.
Let’s rewind to the beginning of the story. InvestorPlace contributor William White did an exceptional job of detailing Corsair Gaming’s initial public offering (IPO).
As White reported, on Sept. 23, 2020, Corsair Gaming initially priced its shares on the Nasdaq Exchange at $17. White also noted that Corsair Gaming stood to gain as much as $163.2 million from the IPO.
Fast-forward to Nov. 24, and CRSR stock reached a 52-week high of $51.37. That’s quite impressive for a stock that started out at $17, wouldn’t you agree?
Yet, perhaps that run-up was too much, too fast. It fell quickly, before climbing back up to around $46 on Feb. 8. And then, starting on Feb. 9, the stock accelerated downwards. On the final trading session of February, the share price had fallen to $35.84.
What could possibly have caused the market to sell off its Corsair Gaming in February? Have no fear — we’ll try to get to the bottom of this billion-dollar mystery right now.
On early Feb. 9, Corsair Gaming released the data for its fourth fiscal quarter. Given the price action of Corsair Gaming shares, you might conclude that the financial results were sub-par. Yet, that doesn’t appear to be the case.
If anything, the company’s quarterly results were perfectly fine. For one thing, Corsair Gaming reported adjusted earnings of 45 cents per share. That beats the Wall Street analyst consensus estimate of 43 cents per share.
Next, Corsair Gaming reported fourth-quarter sales of $556.3 million. Wall Street was bracing for sales of $530.3 million. So again, we have a street beat.
The apparent problem is that the market (as opposed to the Wall Street analysts) had overinflated expectations. Evidently, nowadays if it’s not an absolute blowout, then it’s a major disappointment, particularly for the hyped-up video-game sector.
I would claim that in this instance, the analysts got it right while the investing community got it wrong.
Out of the 11 Wall Street analysts that cover CRSR stock, 10 rate it a buy and the one remaining analysts rates it a hold. So obviously, the experts are still generally bullish on the stock.
Perhaps they see what Corsair Gaming CEO Andy Paul sees – a robust accessories market as gaming and streaming become cultural mainstays for younger generations of consumers:
“In December, we saw YouTube reveal that they had 40 million gaming channels, a number that was far higher than most industry watchers have been estimating … this underscores our thesis that streaming and sharing video content is becoming a way of life for millennials in the same way as playing videogames has become.”
Against this backdrop, the bull case for gaming and streaming accessories — and for Corsair Gaming as a major supplier in this niche — becomes all the more evident.
One of my favorite ways to invest is to wait for a mismatch between market sentiment and reality, and then take a position.
This type of opportunity seems to be presenting itself as Corsair Gaming is poised for growth even while the market is, for the moment at least, leaning bearish on CRSR stock.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.
The post Corsair Gaming Stock’s Post-Earnings Dip Was Entirely Unreasonable appeared first on InvestorPlace.
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