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The Trend Of High Returns At Corsair Gaming (NASDAQ:CRSR) Has Us Very Interested
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Corsair Gaming's (NASDAQ:CRSR) returns on capital, so let's have a look.
What is Return On Capital Employed (ROCE)?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the 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)
0.20 = US$175m ÷ (US$1.3b - US$476m) (Based on the trailing twelve months to September 2021).
So, Corsair Gaming has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Tech industry average of 9.1%.
View our latest analysis for Corsair Gaming
In the above chart we have measured Corsair Gaming's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What The Trend Of ROCE Can Tell Us
Investors would be pleased with what's happening at Corsair Gaming. The data shows that returns on capital have increased substantially over the last four years to 20%. The amount of capital employed has increased too, by 89%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. The current liabilities has increased to 35% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.
The Bottom Line On Corsair Gaming's ROCE
All in all, it's terrific to see that Corsair Gaming is reaping the rewards from prior investments and is growing its capital base. Given the stock has declined 38% in the last year, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.
Corsair Gaming does have some risks though, and we've spotted 2 warning signs for Corsair Gaming that you might be interested in.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
What are the risks and opportunities for Corsair Gaming?
Corsair Gaming, Inc., together with its subsidiaries, designs, markets, and distributes gaming and streaming peripherals, components and systems in the Americas, Europe, the Middle East, and the Asia Pacific.
Rewards
Earnings are forecast to grow 116.22% per year
Risks
Shareholders have been diluted in the past year
Further research on
Corsair Gaming
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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. Simply Wall St has no position in any stocks mentioned.
About NasdaqGS:CRSR
Corsair Gaming
Corsair Gaming, Inc., together with its subsidiaries, designs, markets, and distributes gaming and streaming peripherals, components and systems in the Americas, Europe, the Middle East, and the Asia Pacific.
Adequate balance sheet with reasonable growth potential.
