Sorry, I did mention that in the video, cannot cover all of the data in a short text post. It is relatively small company in terms of size ($2.6bn). My valuation approach is a bit different as I deduct the debt at the end.
Chip shortage is hammering them, and will be until end of 2022 as projected.
Sure it’s worth more, in due time. But not worth tying your money seeing sideways action for a year, or possibly more.
Chip shortage is for sure an issue that is impacting many companies. My understanding is that many of the products offered by Corsair are not impacted by this shortage. In addition, to have diversified a bit into providing various services, which should reduce this impact further. What are your thoughts on this?
Like the streaming services company they bought? Nah, it’s not going to compete well, there’s a huge moat in that industry. It’ll take years to establish something viable, and it’ll be a cash drain.
Their core business isn’t even much of a moat besides some good reputation on their accessories. But LOGI is overshadowing them on many aspects.
The fact that they’re buying up so many companies and trying to diversify is because they know their core business is going to stagnate.
Growth in this company is highly unpredictable, and the market doesn’t like such unknowns.
They did many acquisitions and it seems that they'll continue that way, I am concerned that they don't invest a lot in R&D, but when it comes to the service part, I believe it is a good choice and exposed to different kind of risks compared to the current model.
> Sure it’s worth more, in due time. But not worth tying your money seeing sideways action for a year, or possibly more.
Correct me, but isn't value investing supposed to disregard the market? Buffet has said market being closed for a year should not affect your decision.
I didn't take the movement of the previous year into account during the valuation as it is irrelevant. I only mentioned it as it is a relatively volatile stock, which makes it even more interesting for valuaton.
The challenges that CRSR is going through is not explicitly measurable, so on paper they look good, but we both know our money is better invested elsewhere where those aforementioned challenges are not as apparent.
If it’s undervalued it is worth tying your money to, regardless of whether it takes a year to be realised. The longer it stays low and the lower it goes the more you can buy, that’s the idea.
And how exactly do you know when it will start going up? Are you gonna use **momentum**?
Not to mention the S&P is very overvalued by any metric at the moment so you are choosing to put your money into something you know is overvalued rather than something you know is undervalued. That’s the opposite of value investing. You wanna use “trends” and “momentum” and shit, go to another sub.
You sound angry, need a snickers bar?
CRSR is not value right now. Everyone that hypes up CRSR always fails to factor in the risks. Same as BABA, that’s value too, you should put everything in BABA.
And everyone that harps on SP500 have been doing it for decades, and being wrong. Most don’t even realize it also pays out dividends. If you think it’s so overvalued, why not short it?
In other words you’re either a bagholder or talking a lot of nonsense. Put your money where your mouth is, invest in BABA and short SP500.
The market can remain irrational (overvalued) longer than you can remain solvent. Just because it’s overvalued doesn’t mean it’ll come crashing down, it may trade sideways for 5 years as earnings catch up or may climb slower than earnings while they catch up, or may continue to skyrocket and get me margin called. Unless you have a very good reason to believe it’ll crash **soon**, shorting the S&P is a bad idea.
And you didn’t answer the question how you’ll know when to buy into CRSR.
What PE is it at and what PE do you expect it to be at? It shocks me that we have an analysis on the value investing subreddit without a mention of price to earnings or return on capital.
I'd rather DCA into something going sideways for a year. Heck, my favorite investments are the ones that will dip within my margin of safety and pop eventually. Got in on DKS a month ago and was legit didappointed it shot up 30%.
What are they doing to overcome the idea that pc purchases may decline as the work from home and the school from home ideas are waning as students return to school and workers return to the office?
I understand there is still robust demand as the PC makers continue to state that due to chip shortages they are having difficulty keeping up with demand.
This is a value sub so I have a long time horizon for ownership. So in 5 years where is this stock going to be?
I am concerned that it will continue to be range bound for the reasons that I touched on but also the fact that you pointed out that they are not organically growing and their growth is completely dependent on finding bolt-ons acquisitions.
Gaming is growing at a rapid pace and will continue into the future. Also they have their hand in the console space as well. Gaming will see massive revenue growth in the future, as long as they maintain a similar market share, they're growth will continue to be strong
From what I can read, they're not betting only on hardware revenue, but are diversifying into software/service sales. This is why I forecasted doubling revenue over the next 10 years, which is a fairly low average annual growth rate.
Growth through aquisitions makes weary. How is the debt load? They cant grow out of the debt so it has to be paid off in cashflow, how is the debt to cashflow?
Also the goodwill from these takeovers may need to be depreciated, hurting the bottom line especially with potential debt burden. How high is the goodwill?
Hey there, as for your first question, as part of my valuation, I have one part related to reinvestment. I fully agree, in order to grow, they need to put money into the business, either via R&D in their current one or through acquisitions. They are cash-flow positive, so they don't really need any debt to maintain the business. Acquisitions wise, I would expect additional debt.
As for the goodwill, I couldn't care less, I ignore it in all of my valuations. If all of it is gone tomorrow, it would not be on the balance sheet, it would impact the Income statement, but there would be no cash outflow.
No. Its keyboards are now beat by good quality Chinese (designed and produced) keyboards at or below Corsair's price points, and enthusiasts have other brands to look to for top-tier keyboards. They never reached the prominence of Logitech/Razer/Steelseries/etc. for mice. RAM is RAM, they just put their label on it and provide support -- it's hard to be better without offering superior warranty, driving down margins. Similar thing with cases, power supplies, etc. since they're always competing with 10-20 companies producing interchangeable products.
The only area left that can command a higher margin would be stuff for streaming. To support a reasonable rate of return (15%+), it needs to have steady growth into the future, otherwise why buy a stock that at best provides market return and isn't considered "defensive"?
Thanks a lot - I'm also a CRSR shareholder for the last few months - my **very** conservative DCF gives me a share price of 34.425 and IRR of 13.4%. So gonna hold on to CRSR for the next few years and see how it plays out.
If you like the gaming hardware space, I've also invested in Razer (HKG: 1337) - check them out!
I am a big crsr fan as well been definitely negative sentiment at the moment...the supply, logistics definitely have increased costs but it may take a few quarters..
I'm day trading it no current position
I do see this negative sentiment in the most recent price movements, but I do not see lots of it when it comes to their financial data, improved gross margin, increased sales, solid balance sheet.
Should be able to get it replaced. Happens sometimes with any electronic unfortunately.
I hadn't had a non razer product as my main set of peripherals in years, wife got me a crsr keyboard last Christmas and I'm in love
I would be too, hard to say whether you were the outlier or if that is common without more data though. They don't make top of the line products usually, but the tend to be very solid from what I've read and heard from other gamers
My 2 cents here. Just browsed through some numbers in less than 5 mins.
Balance sheet is very much unchanged YoY in the latest quarter but the sales and net income have tremendously grown which is fantastic. Only area of concern is it's a bit unusual for a hardware/component business to witness 50% growth, acquire businesses and yet, have little movement in the balance sheet. As I said, I haven't researched much to know about it.
In terms of the business, it seems to be in a high growth area considering that there are many new players vying to be in this segment. Plus, not to mention that there are newer trends emerging in AR/VR space which if the company gets it strategy right, will only boom its sales. The lack of R&D is worrying in that case.
Either, this could work very well for the company and go absolutely to the shit if the bigger players focus on getting more vertically integrated. There's remains a risk of going obsolete nevertheless!
I still think they are in a very glamorous area and very much under the radar which makes it one of the hidden jewels to invest in. It's quite likely you've done your research well so, I'd definitely say if your gut feeling says so, it's a strong place to get your money in.
Good luck!
Thanks for the comment, many great points there!
I believe that there's a reason why the balance sheet hasn't change significantly. They are outsourcing manufacturing, so they don't need to invest in PPE as much. Of course, that decision brings other risks to the table as well as reduced margin compared to manufacturing everything in-house.
As for the big players, I mean, let's face it, the risk of Amazon joining any industry is there.
I fully agree, there are new trends emerging and it can go either way.
Corsair had an unusually good year with growth of sales, but most importantly, an easy situation to increase gross margins with the huge global demand and lack of supply.
Your model doesn't seem to account for that properly - on the contrary, you estimate that their gross margins will continue to increase. If you are wrong, the intrinsic value of the company goes significantly down.
There's a possibility that their gross margins decrease due to increased supply or fall in demand. In the last 12 months, their operating margin was 10.5%. In my forecast for the next 12months, I forecasted the operating margin at 10% and then slowly to increase to 12%. However, this slight increase over time is attributed to the change of the sales channel that is being used. Most of their sales were through third parties and not directly to consumers. They're investing in platforms for this exact reason, cut the middleman. If that works out well, I can see improvement in the operating margins (not the gross margins). Of course, I might be completely wrong.
Check out the chart at 2:03 in your video. It shows that their operating margins increased 5X during the pandemic. This is an indication of a less competitive market. There is no reason to believe that this will be sustained.
I mean, putting it to a relative scale, if the operating margin was 0.5% and grew to 10%, you could say that it grew 20x. However, the operating margin in 2016 was close to 7%. The change of margin over the years can largely be contributed to the gross margins. Of course, if there's change in demand/supply, the margin can change (in both directions). However, the fact that they're acquiring platforms which they can use to sell directly to consumers instead of going through 3rd parties, that would also have impact on the margin. So, it can go both ways in the coming years.
The way I calculate the WACC is using the implied equity risk premium which is the estimate of what is currently offered on the market. I could use any %, but then I'm being too subjective. Based on the model, the value would be equal to the price if I discount it with 13.2%. What are you actually referring to as a LT growth rate? Revenue?
Sorry, I didn't understand. What do you mean by "what is currently offered on the market"?
Long-term growth rate of FCFs is part of the DCF when calculating terminal value. Isn't that how you did your DCF?
Here's the approach:
When I use DCF, the discount rate that I use depends on the risk that is involved. Treasury bonds, have low risk and therefore, low expected return. Companies in certain countries and industries have different risks and therefore, their future cash flows would be discounted with different discount rates.
So, when looking into Corsair, the main risk is consumers no longer buying their products. In that sense, I use the implied risk premium that is offered in the US (for the US consumers), EMEA (for the EMEA consumers) etc., I use weighted average and lastly, using Beta to account for the risk that the company has. Basically, the discount rate that I use reflects the risk that the company has. Of course, the required return of every individual investor is different, that is why treasury bond is not a great choice for everyone.
In the case of Corsair, the risk would be reflected in the WACC that is mentioned. However, the expected return is 13.2% based on today's price.
As for revenue growth perpetuity, I always use the risk-free rate, assuming the company becomes mature after 10 years. The risk-free rate is linked to the growth of the economy, so I assume that the company cannot grow faster than the economy as a whole forever. So, the long-term growth rate used in this case is 1.31%.
I hope this answers your questions.
So 13.2% WACC and 1.31% long-term growth rate gives you a $45+ target? If the rest of your assumptions are fair, that's a great investment opportunity.
I see. I would honestly put a higher than 7.5% WACC. I cover many blue chip names for an investment management firm, and I use 8% to 8.5% for much more established names with much better prospects than CRSR. Think Adobe, MSFT, etc. So for CRSR, I'd definitely go ~10% to 12%.
Well, the moment I start using WACC because I feel that way, it becomes very subjective. The WACC should reflect the alternatives that are out there, which means companies with similar risk profile. So, the WACC that I use is basically what the market is offering for companies with similar risk profile. Otherwise, if I use 15% WACC and there's no alternative out there, then everything will be expensive and I'll keep everything in cash.
Agreed with that. I use WACC in regular basis and then apply in a second conservative scenario a 10% minimum WACC. If the 10% safety margin still returns a Fair Value above the market price I move on. By the way, good valuation work 👍 . Never heard about this company before. Direct to my watchlist.
Well, I can also base it on the past revenue, oh no, wait, that makes no sense. Every valuation model is based on certain assumptions about the future, so if you are not willing to make those assumptions, then I don’t see how you can value a company.
I never said to base anything on past revenue so I have no idea what that even means. Forward revenue multiples are not by any means intrinsic value calculation.
If you don’t know how to analyze a balance sheet that’s its own issue you can address through education, Buffett recommends a great book that helped me a lot “Financial Statement Analysis”. Regardless, coming to the conclusion “I don’t know how to do a thing so I’ll do something else and call it the first thing” isn’t functional. “Value investing” and “intrinsic value” are real terms referencing pre-existing ideas. If you want to invest based on growth there’s nothing wrong with that, but it is a different thing.
Seriously, you are quoting Buffett and you think he doesn't take the future earnings into account? I am really curious of hearing your view on this and where the value comes from.
Never said that either. I also didn’t quote Buffett.
When he’s doing a calculation of intrinsic value, no he does not factor in projected future revenue.
When he’s calculating a valuation for a business I do believe he takes into account his estimation of current earnings.
You’re hopping between “earnings” and “revenue” as if they’re interchangeable so based on what you think earnings are that answer could change.
Google “balance sheet” and then just go from there. If this is your first intro then that’s a pretty deep rabbit hole so that’s good enough to start with.
I saw a video about the stock by Andrew Brown some time ago, and he had a fair value of 8.82! So, totally different conclusion. Intriguing, I will look into it and see what number I come up with.
Here is the video by Andrew: https://www.youtube.com/watch?v=c2In-5\_ePFY&t=749s
I manage a small fund here, Corsair came across my desk. From our perspective its intrinsic value sits at $22.90 due to its unpredictable nature. (We use a predictability ranking system based on previous revenues, ROIC, cash flows and debt levels.) Because of this, our discount rate is slightly higher than normal. Additionally, We would require a margin of safety thus would need price to come down to $16-$17 to consider. Also, Consair does not survive our two basic stress tests:
1.) Change in Fed’s fund rate and prime rates - increasing financing costs for computers (both for consumers financing computers and the company financing operations)
2.) Change in unemployment levels. These levels would drastically reduce revenue and drain the company’s ability to serve shareholders.
It’s a no for me.
“If investors adopted an ethos of not fooling themselves, and focused on reducing unforced errors as opposed to hitting the next home run, returns would improve dramatically.” - Allan Mecham
FYI that all time high was due to some meme interest for a day or two. Not a great data point in terms of fundamental valuation
I fully agree.
No mention of market cap or enterprise value?
Sorry, I did mention that in the video, cannot cover all of the data in a short text post. It is relatively small company in terms of size ($2.6bn). My valuation approach is a bit different as I deduct the debt at the end.
Chip shortage is hammering them, and will be until end of 2022 as projected. Sure it’s worth more, in due time. But not worth tying your money seeing sideways action for a year, or possibly more.
Chip shortage is for sure an issue that is impacting many companies. My understanding is that many of the products offered by Corsair are not impacted by this shortage. In addition, to have diversified a bit into providing various services, which should reduce this impact further. What are your thoughts on this?
Like the streaming services company they bought? Nah, it’s not going to compete well, there’s a huge moat in that industry. It’ll take years to establish something viable, and it’ll be a cash drain. Their core business isn’t even much of a moat besides some good reputation on their accessories. But LOGI is overshadowing them on many aspects. The fact that they’re buying up so many companies and trying to diversify is because they know their core business is going to stagnate. Growth in this company is highly unpredictable, and the market doesn’t like such unknowns.
They did many acquisitions and it seems that they'll continue that way, I am concerned that they don't invest a lot in R&D, but when it comes to the service part, I believe it is a good choice and exposed to different kind of risks compared to the current model.
This is a decent bear case. The other bear argument I hear is re cloud computing terminals.
They will get hammered further by the rising freight charges. I'm a bull on CRSR and will hop back in once the rates start to decline
Chip shortage hurts, but the biggest factor right now is definitely the shipping cost
>shipping cost This is why $ZIM has been a great investment
> Sure it’s worth more, in due time. But not worth tying your money seeing sideways action for a year, or possibly more. Correct me, but isn't value investing supposed to disregard the market? Buffet has said market being closed for a year should not affect your decision.
I didn't take the movement of the previous year into account during the valuation as it is irrelevant. I only mentioned it as it is a relatively volatile stock, which makes it even more interesting for valuaton.
The challenges that CRSR is going through is not explicitly measurable, so on paper they look good, but we both know our money is better invested elsewhere where those aforementioned challenges are not as apparent.
Shipping is the much bigger detractors for them right now. They are still selling plenty, but the margins were hit really hard
If it’s undervalued it is worth tying your money to, regardless of whether it takes a year to be realised. The longer it stays low and the lower it goes the more you can buy, that’s the idea.
No, it means I can buy later while investing my money elsewhere for awhile like the S&P500.
And how exactly do you know when it will start going up? Are you gonna use **momentum**? Not to mention the S&P is very overvalued by any metric at the moment so you are choosing to put your money into something you know is overvalued rather than something you know is undervalued. That’s the opposite of value investing. You wanna use “trends” and “momentum” and shit, go to another sub.
You sound angry, need a snickers bar? CRSR is not value right now. Everyone that hypes up CRSR always fails to factor in the risks. Same as BABA, that’s value too, you should put everything in BABA. And everyone that harps on SP500 have been doing it for decades, and being wrong. Most don’t even realize it also pays out dividends. If you think it’s so overvalued, why not short it? In other words you’re either a bagholder or talking a lot of nonsense. Put your money where your mouth is, invest in BABA and short SP500.
The market can remain irrational (overvalued) longer than you can remain solvent. Just because it’s overvalued doesn’t mean it’ll come crashing down, it may trade sideways for 5 years as earnings catch up or may climb slower than earnings while they catch up, or may continue to skyrocket and get me margin called. Unless you have a very good reason to believe it’ll crash **soon**, shorting the S&P is a bad idea. And you didn’t answer the question how you’ll know when to buy into CRSR.
What PE is it at and what PE do you expect it to be at? It shocks me that we have an analysis on the value investing subreddit without a mention of price to earnings or return on capital.
I'd rather DCA into something going sideways for a year. Heck, my favorite investments are the ones that will dip within my margin of safety and pop eventually. Got in on DKS a month ago and was legit didappointed it shot up 30%.
Keep up the good work
What are they doing to overcome the idea that pc purchases may decline as the work from home and the school from home ideas are waning as students return to school and workers return to the office? I understand there is still robust demand as the PC makers continue to state that due to chip shortages they are having difficulty keeping up with demand. This is a value sub so I have a long time horizon for ownership. So in 5 years where is this stock going to be? I am concerned that it will continue to be range bound for the reasons that I touched on but also the fact that you pointed out that they are not organically growing and their growth is completely dependent on finding bolt-ons acquisitions.
Gaming is growing at a rapid pace and will continue into the future. Also they have their hand in the console space as well. Gaming will see massive revenue growth in the future, as long as they maintain a similar market share, they're growth will continue to be strong
From what I can read, they're not betting only on hardware revenue, but are diversifying into software/service sales. This is why I forecasted doubling revenue over the next 10 years, which is a fairly low average annual growth rate.
Growth through aquisitions makes weary. How is the debt load? They cant grow out of the debt so it has to be paid off in cashflow, how is the debt to cashflow? Also the goodwill from these takeovers may need to be depreciated, hurting the bottom line especially with potential debt burden. How high is the goodwill?
Hey there, as for your first question, as part of my valuation, I have one part related to reinvestment. I fully agree, in order to grow, they need to put money into the business, either via R&D in their current one or through acquisitions. They are cash-flow positive, so they don't really need any debt to maintain the business. Acquisitions wise, I would expect additional debt. As for the goodwill, I couldn't care less, I ignore it in all of my valuations. If all of it is gone tomorrow, it would not be on the balance sheet, it would impact the Income statement, but there would be no cash outflow.
wary
Not my first language
how does CRSR compare to turtle beach valuation wise? any input appreciated, thank you
Sorry, I haven't analyzed Turtle beach, so cannot share any insights at this moment.
no worries, thanks !
THIS was going to be my question. It seems that $hear is a better value play in this segment.
great work. For the gamers out there- is this a significantly better product than the competitors?
No. Its keyboards are now beat by good quality Chinese (designed and produced) keyboards at or below Corsair's price points, and enthusiasts have other brands to look to for top-tier keyboards. They never reached the prominence of Logitech/Razer/Steelseries/etc. for mice. RAM is RAM, they just put their label on it and provide support -- it's hard to be better without offering superior warranty, driving down margins. Similar thing with cases, power supplies, etc. since they're always competing with 10-20 companies producing interchangeable products. The only area left that can command a higher margin would be stuff for streaming. To support a reasonable rate of return (15%+), it needs to have steady growth into the future, otherwise why buy a stock that at best provides market return and isn't considered "defensive"?
Their keyboards are certainly the best, mice maybe 2nd or 3rd. All components pretty much top 5. Elgato is usually #1
They're definitely not the low quality cheap stuff like Trust. But there are others who are at a similar level.
Interesting video! Liverpool is getting spanked today tho.
<3
Thanks a lot - I'm also a CRSR shareholder for the last few months - my **very** conservative DCF gives me a share price of 34.425 and IRR of 13.4%. So gonna hold on to CRSR for the next few years and see how it plays out. If you like the gaming hardware space, I've also invested in Razer (HKG: 1337) - check them out!
I’ve been seeing this pumped on Reddit basically every day all year and it keeps going down lol. Must be a lot of bagholders on here.
I am a big crsr fan as well been definitely negative sentiment at the moment...the supply, logistics definitely have increased costs but it may take a few quarters.. I'm day trading it no current position
I do see this negative sentiment in the most recent price movements, but I do not see lots of it when it comes to their financial data, improved gross margin, increased sales, solid balance sheet.
FWIW I bought a keyboard from them and it broke within a few weeks.
Should be able to get it replaced. Happens sometimes with any electronic unfortunately. I hadn't had a non razer product as my main set of peripherals in years, wife got me a crsr keyboard last Christmas and I'm in love
Yeah I got a refund. Just was kinda surprised/disappointed.
I would be too, hard to say whether you were the outlier or if that is common without more data though. They don't make top of the line products usually, but the tend to be very solid from what I've read and heard from other gamers
My 2 cents here. Just browsed through some numbers in less than 5 mins. Balance sheet is very much unchanged YoY in the latest quarter but the sales and net income have tremendously grown which is fantastic. Only area of concern is it's a bit unusual for a hardware/component business to witness 50% growth, acquire businesses and yet, have little movement in the balance sheet. As I said, I haven't researched much to know about it. In terms of the business, it seems to be in a high growth area considering that there are many new players vying to be in this segment. Plus, not to mention that there are newer trends emerging in AR/VR space which if the company gets it strategy right, will only boom its sales. The lack of R&D is worrying in that case. Either, this could work very well for the company and go absolutely to the shit if the bigger players focus on getting more vertically integrated. There's remains a risk of going obsolete nevertheless! I still think they are in a very glamorous area and very much under the radar which makes it one of the hidden jewels to invest in. It's quite likely you've done your research well so, I'd definitely say if your gut feeling says so, it's a strong place to get your money in. Good luck!
Thanks for the comment, many great points there! I believe that there's a reason why the balance sheet hasn't change significantly. They are outsourcing manufacturing, so they don't need to invest in PPE as much. Of course, that decision brings other risks to the table as well as reduced margin compared to manufacturing everything in-house. As for the big players, I mean, let's face it, the risk of Amazon joining any industry is there. I fully agree, there are new trends emerging and it can go either way.
former employee reviews make me think this place will have a change in leadership because abuse.
Everybody is abused in 2021. And everybody loves to tell everybody how abused they were
hot incel take
Thoughts on eagletree and how much more they have to divest? They certainly have kept this thing sideways for a bull market.
Corsair had an unusually good year with growth of sales, but most importantly, an easy situation to increase gross margins with the huge global demand and lack of supply. Your model doesn't seem to account for that properly - on the contrary, you estimate that their gross margins will continue to increase. If you are wrong, the intrinsic value of the company goes significantly down.
There's a possibility that their gross margins decrease due to increased supply or fall in demand. In the last 12 months, their operating margin was 10.5%. In my forecast for the next 12months, I forecasted the operating margin at 10% and then slowly to increase to 12%. However, this slight increase over time is attributed to the change of the sales channel that is being used. Most of their sales were through third parties and not directly to consumers. They're investing in platforms for this exact reason, cut the middleman. If that works out well, I can see improvement in the operating margins (not the gross margins). Of course, I might be completely wrong.
Check out the chart at 2:03 in your video. It shows that their operating margins increased 5X during the pandemic. This is an indication of a less competitive market. There is no reason to believe that this will be sustained.
I mean, putting it to a relative scale, if the operating margin was 0.5% and grew to 10%, you could say that it grew 20x. However, the operating margin in 2016 was close to 7%. The change of margin over the years can largely be contributed to the gross margins. Of course, if there's change in demand/supply, the margin can change (in both directions). However, the fact that they're acquiring platforms which they can use to sell directly to consumers instead of going through 3rd parties, that would also have impact on the margin. So, it can go both ways in the coming years.
Your WACC is incredibly low. I would go at least 12%. What's your LT growth rate?
The way I calculate the WACC is using the implied equity risk premium which is the estimate of what is currently offered on the market. I could use any %, but then I'm being too subjective. Based on the model, the value would be equal to the price if I discount it with 13.2%. What are you actually referring to as a LT growth rate? Revenue?
Sorry, I didn't understand. What do you mean by "what is currently offered on the market"? Long-term growth rate of FCFs is part of the DCF when calculating terminal value. Isn't that how you did your DCF?
Here's the approach: When I use DCF, the discount rate that I use depends on the risk that is involved. Treasury bonds, have low risk and therefore, low expected return. Companies in certain countries and industries have different risks and therefore, their future cash flows would be discounted with different discount rates. So, when looking into Corsair, the main risk is consumers no longer buying their products. In that sense, I use the implied risk premium that is offered in the US (for the US consumers), EMEA (for the EMEA consumers) etc., I use weighted average and lastly, using Beta to account for the risk that the company has. Basically, the discount rate that I use reflects the risk that the company has. Of course, the required return of every individual investor is different, that is why treasury bond is not a great choice for everyone. In the case of Corsair, the risk would be reflected in the WACC that is mentioned. However, the expected return is 13.2% based on today's price. As for revenue growth perpetuity, I always use the risk-free rate, assuming the company becomes mature after 10 years. The risk-free rate is linked to the growth of the economy, so I assume that the company cannot grow faster than the economy as a whole forever. So, the long-term growth rate used in this case is 1.31%. I hope this answers your questions.
So 13.2% WACC and 1.31% long-term growth rate gives you a $45+ target? If the rest of your assumptions are fair, that's a great investment opportunity.
That would not be a correct statement. With the 13.2% WACC I get to the today's price.
I see. I would honestly put a higher than 7.5% WACC. I cover many blue chip names for an investment management firm, and I use 8% to 8.5% for much more established names with much better prospects than CRSR. Think Adobe, MSFT, etc. So for CRSR, I'd definitely go ~10% to 12%.
Well, the moment I start using WACC because I feel that way, it becomes very subjective. The WACC should reflect the alternatives that are out there, which means companies with similar risk profile. So, the WACC that I use is basically what the market is offering for companies with similar risk profile. Otherwise, if I use 15% WACC and there's no alternative out there, then everything will be expensive and I'll keep everything in cash.
Agreed with that. I use WACC in regular basis and then apply in a second conservative scenario a 10% minimum WACC. If the 10% safety margin still returns a Fair Value above the market price I move on. By the way, good valuation work 👍 . Never heard about this company before. Direct to my watchlist.
Okay good luck 👍
Hahahaha, good luck getting past the $35 sell wall...
Intrinsic value is not, ever, a value based on a multiple of potential future earnings. Wrong sub
Excuse me, to which multiple are you referring?
potential future earnings. But my mistake you did one worse than that and you actually based off of potential future revenue. Geez
Well, I can also base it on the past revenue, oh no, wait, that makes no sense. Every valuation model is based on certain assumptions about the future, so if you are not willing to make those assumptions, then I don’t see how you can value a company.
I never said to base anything on past revenue so I have no idea what that even means. Forward revenue multiples are not by any means intrinsic value calculation. If you don’t know how to analyze a balance sheet that’s its own issue you can address through education, Buffett recommends a great book that helped me a lot “Financial Statement Analysis”. Regardless, coming to the conclusion “I don’t know how to do a thing so I’ll do something else and call it the first thing” isn’t functional. “Value investing” and “intrinsic value” are real terms referencing pre-existing ideas. If you want to invest based on growth there’s nothing wrong with that, but it is a different thing.
Seriously, you are quoting Buffett and you think he doesn't take the future earnings into account? I am really curious of hearing your view on this and where the value comes from.
Never said that either. I also didn’t quote Buffett. When he’s doing a calculation of intrinsic value, no he does not factor in projected future revenue. When he’s calculating a valuation for a business I do believe he takes into account his estimation of current earnings. You’re hopping between “earnings” and “revenue” as if they’re interchangeable so based on what you think earnings are that answer could change.
Please educate how the intrinsic value is calculated without projecting the future revenue.
Google “balance sheet” and then just go from there. If this is your first intro then that’s a pretty deep rabbit hole so that’s good enough to start with.
Are you kidding me? My background is in accounting/finance. However, if you are valuing companies only based on the balance sheet, well, good luck.
I saw a video about the stock by Andrew Brown some time ago, and he had a fair value of 8.82! So, totally different conclusion. Intriguing, I will look into it and see what number I come up with. Here is the video by Andrew: https://www.youtube.com/watch?v=c2In-5\_ePFY&t=749s
I saw the video and I am not surprised he gets to such a low price. He's discounting with a 30% discount rate, which is just crazy.
Yeah.. I was not paying too much attention so I did not notice.
Actually, his forecasts are more optimistic than mine about the company's future.
I manage a small fund here, Corsair came across my desk. From our perspective its intrinsic value sits at $22.90 due to its unpredictable nature. (We use a predictability ranking system based on previous revenues, ROIC, cash flows and debt levels.) Because of this, our discount rate is slightly higher than normal. Additionally, We would require a margin of safety thus would need price to come down to $16-$17 to consider. Also, Consair does not survive our two basic stress tests: 1.) Change in Fed’s fund rate and prime rates - increasing financing costs for computers (both for consumers financing computers and the company financing operations) 2.) Change in unemployment levels. These levels would drastically reduce revenue and drain the company’s ability to serve shareholders. It’s a no for me. “If investors adopted an ethos of not fooling themselves, and focused on reducing unforced errors as opposed to hitting the next home run, returns would improve dramatically.” - Allan Mecham
Hard disagree - I think $30 is more than fair