Corsair Gaming's (NASDAQ:CRSR) is a growing hardware - gaming peripherals company, that is in tight competition with other manufacturers like Logitech International (NASDAQ:LOGI). We are going to examine both the growth potential for Corsair and the Returns it provides to its shareholders.
Corsair just posted earnings, and generally seems to be in-line with long term estimates:
- EPS was a bit off from the US$0.38 per share expectations, to an actual figure of US$0.36 per share
- Revenue was at $472.9 million, above the analyst consensus of $467.1 million
- EBIT was $34.7 million, a decrease of 4.7% year-over-year
For traders these numbers might be concerning, but for long term investors they remain strong and perhaps an opportunity, since the company is still growing and profitable.
As we look at the current earnings, in is good to take a step back and get a feeling of the quality of returns for the company. With that, we will gain insight on the future profit delivering capacity.
In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns.
We noticed some great changes in Corsair Gaming's returns on capital, so let's have a look.
Return On Capital Employed (ROCE): What is it?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Corsair Gaming is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.26 = US$216m ÷ (US$1.3b - US$499m) (Based on the trailing twelve months to March 2021).
So, Corsair Gaming has an ROCE of 26%.
That's a fantastic return, and not only that, it outpaces the average of 8.3% earned by companies in a similar industry.
Above, you can see how the current ROCE for Corsair Gaming compares to its prior returns on capital, but there's only so much you can tell from the past.
If you'd like to see what analysts are forecasting going forward, you should check out our free report for Corsair Gaming.
The Trend Of ROCE
Over the last four years, returns on capital employed have risen substantially to 26%.
The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 282%.
The increasing returns on a growing amount of capital is common amongst high performers, and that's why we're impressed.
The Bottom Line
Corsair recently became profitable, and is demonstrating large returns capacity.
The earnings were off expectations, but still very strong for long term investors, since the price has been relatively stable in the past few months it is worth noting that Corsair may be poised for a change in price levels - it is only logical to assume that the market is waiting on a more reliable performance before it is ready to commit to higher price levels.
Corsair Gaming has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific.
With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
On a final note, we've found 1 warning sign for Corsair Gaming that we think you should be aware of.
High returns are a key ingredient to strong performance, so check out our free list of stocks earning high returns on equity with solid balance sheets.
Simply Wall St analyst Goran Damchevski and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.