Saturday, December 03, 2022

Corsair Gaming (NASDAQ:CRSR) may struggle to allocate capital

If you’re looking for a multi-bagger, there are a few things to keep in mind. A common approach is to try to find company with Return on capital employed (ROCE) that are increasing, in conjunction with an increasing cost of capital employed. Simply put, these types of businesses are compounding machines, meaning they are reinvesting their earnings at a consistently high rate. Having said that, at first glance corsair gaming We’re not jumping out of our chairs on how (NASDAQ:CRSR) returns are playing out, but let’s take a deeper look.

What is the Return on Capital Employed (ROCE)?

For those who don’t know, ROCE is a measure of a company’s annual profit before tax (its return), relative to the capital employed in the business. Analysts use this formula for Corsair Gaming to calculate it:

Return on Capital Employed = Earnings Before Interest and Taxes (EBIT) (Total Assets – Current Liabilities)

0.15 = US$138m (US$1.3b – US$447m) (Based on last twelve months to December 2021),

therefore, The ROCE of Corsair Gaming is 15%. Overall, that’s a satisfactory return, but much better than the tech industry average of 11%.

See our latest analysis for Corsair Gaming

NasdaqGS: CRSR Return on Capital Employed as on April 16, 2022

In the chart above we’ve measured Corsair Gaming’s past ROCE by its past performance, but the future is arguably more important. If you’d like, you can check out forecasts from analysts covering Corsair Gaming here free.

What can we tell from Corsair Gaming’s ROCE trend?

When we saw the ROCE trend at Corsair Gaming, we couldn’t believe much. To be more specific, ROCE has fallen by 40% over the past five years. However, both revenue and the amount of assets employed in the business have increased, suggesting that the company is investing in growth, and the additional capital has resulted in a short-term decrease in ROCE. And if the increased capital generates additional returns, the business and thus the shareholders will benefit in the long run.

On a related note, Corsair Gaming has reduced its current liabilities to 33% of total assets. This may partly explain why ROCE has dropped. What’s more, it can reduce some aspects of risk to the business because now the company’s suppliers or short-term creditors are funding less for its operations. Since the business is basically funding most of its operations with its own money, you could argue that this has made the business less efficient at generating ROCE.

key takeaway

Even though return on capital has fallen in the short term, we find it promising that both revenue and capital employed for Corsair Gaming have increased. These growth trends have not delivered growth returns, however, as the stock is down 40% over the past year. As a result, we’d recommend doing further research on this stock to see what other business fundamentals can show us.

Another thing to note, we have recognized 1 warning sign Understanding this should be part of your investing process with Corsair Gaming.

While Corsair Gaming Isn’t Earning the Highest Returns, Check It Out free List of companies earning high return on equity with solid balance sheet.

This article by Simple Wall St. is general in nature. We only provide commentary based on historical data and analyst forecasts using an unbiased methodology and our articles are not intended to be financial advice. It does not recommend buying or selling any stock, and does not take into account your objectives, or your financial situation. Our goal is to bring you long term focused analysis powered by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative content. Simple Wall St does not have a position in any of the stocks mentioned.

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