Other than some extreme volatility earlier this year, Corsair Gaming (NASDAQ:CRSR) stock traded in a narrow range at between $26 and $30.

When it last reported quarterly earnings, CRSR stock tried but failed, to break out of a downtrend. More recently, the high-end gaming computer supplier found technical chart resistance.

Unless Corsair posts a more convincing quarterly report, short sellers will have the upper hand. They have an 11.7% short float position against the stock. Before justifying a buy on Corsair, what are the major headwinds that this inexpensive stock faces?

Selling Pressure on CRSR Stock

In the second quarter, Corsair posted revenue of $473 million and EBITDA of $52 million. Revenue rose by 24.3% from a year ago, led by strong peripherals sales, which rose by 40.9% to $155.2 million. The company underperformed expectations due to supply chain constraints and logistics issues.

CEO Andy Paul highlighted the company’s investment in research and development, infrastructure, and marketing. This led to the release launch of its first camera. At 75 new products launched so far, Corsair is covering many new areas of the PC market.

Investors do not see it that way.

Corsair has to pay down its debt. In Q2, it took advantage of its higher cash flow to pay down $25 million more of its debt. This is strategically important since rate hikes in the coming quarter will increase the cost of carrying debt.

Opportunity

Cultural shifts in the gaming market are an opportunity for Corsair to increase its total addressable market. For example, the company will grow its market share in the console, PC, and mobile markets (as shown on slide 28). By dominating dozens of product categories, consumers will choose Corsair’s peripherals solutions first.

Corsair’s low stock valuation is a chance for value investors to accumulate a position at cheap prices. Conversely, its forward price-earnings ratio of 13.8is higher than that of HP (NYSE:HPQ) or Dell (NYSE:DELL). Those PC makers trade at a 7.4x and 11.26x multiple, respectively. As Corsair and the industry work through the supply constraints, its profit margin will improve.

Ocean freight costs are increasing logistics costs (per slide 20). The shipping industry will adjust by increasing supply. General demand for goods made overseas will fall for goods that are sensitive to prices. In the gaming market, Corsair has superior product quality and performance over the competition. Customers are willing to spend more on the company’s gaming components and systems.

Growth in the Second Half

Chief Financial Officer Michael Potter acknowledged the second quarter is usually seasonally weak. That follows with a stronger second half of the year. The outlook is not a guarantee. Customers face huge shortages of high-end computer chips and graphics cards. This is raising the price of gaming systems in the $2,000 to $4,000 range.

Because it is hard for them to build, Paul said the sales channels and suppliers adjusted.

Fair Value

As shown above, CRSR shares are trading at a modest 6% discount to fair value. Thanks to its strong profit margins, the stock scores an 88/100 on quality.

As a former meme stock on Reddit’s r/WallStreetBets, Corsair could spike to the $40 range briefly. In June, markets thought those speculators disappeared, only to witness the frenzied buying that month. Still, momentum investors in the sub-forum may have lost interest in meme stocks and on Corsair.

On Wall Street, four analysts offer a 12-month price target. The average price target is $39 and ranges from $31 to $45, according to Tipranks.

Your Takeaway

Investing in PC gaming stocks is a test of investor patience. The stock may move nowhere for months. As markets recognize the expanding profits and higher sales, more investors will pile onto Corsair stock. The technology index is trading at a premium in general with Corsair bucking the trend.

Value investors should consider accumulating a position at current levels. Selling puts or buying long-term call options is another way to bet on the upside potential in this undervalued firm.

On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.