When a company becomes the newest darling among retail traders, watch out. I actually like video-game hardware and accessories company Corsair Gaming (NASDAQ:CRSR), but its apparent popularity among Reddit users may be a warning sign for CRSR stock.
Don’t get me wrong. I find it fascinating that r/WallStreetBets participants are standing up to the well-heeled hedge funds that allegedly short-sell stocks.
It’s perfectly fine to root for the Reddit crowd in this unfolding David-versus-Goliath story. Still, this doesn’t mean that you actually have to wager your hard-earned money on CRSR stock.
There’s even a famous market commentator who’s concerned about the meme-stock phenomenon, and Corsair Gaming in particular. His cautionary note is timely, and could save you from major capital loss.
A Closer Look at CRSR Stock
I have to give InvestorPlace contributor William White kudos for providing the scoop on Corsair Gaming’s initial public offering (IPO).
As White explained, Corsair Gaming initially priced its shares on the Nasdaq Exchange at $17 on Sept. 23, 2020.
It was a highly successful IPO. The bulls ran with CRSR stock from the outset, launching it to a 52-week high of $51.37 on Nov. 24.
Unfortunately, that level of enthusiasm couldn’t be sustained. The share price sank in February and March of 2021, landing in the low $30’s.
Then, in mid-June, CRSR stock unexpectedly popped to $40. The rally was short-lived, though, as the stock fell back to $31 and change by June 22.
I can’t prove it, but I suspect that meme-stock short squeezers contributed to that quick share-price run-up.
Is the stock coiling for another breakout moment? It’s hard to know for sure, but I certainly wouldn’t want to take a short position against Corsair Gaming now.
A Millionaire Maker?
I couldn’t find the actual Reddit posting, but I read secondhand reports of a r/WallStreetBets prediction that Corsair Gaming will “swallow the gaming industry and be a millionaire stock maker.”
Perhaps this could become a self-fulfilling prophecy, as CRSR stock jumped when this prediction was issued.
This is a symptom of the democratization of the financial markets in the 2020’s. I’ve been around for a while and have never seen anything like this before.
For many years, only a handful of elite market commentators had the power to move asset prices with their words. Meanwhile, amateur traders could only watch helplessly from the sidelines.
In 2021, Corsair Gaming briefly became the poster child of the r/WallStreetBets power-to-the-people movement. However, chasing meme stocks isn’t a reliable investment strategy.
Corsair’s keyboards, controllers, mice and headsets and other peripherals are strong sellers in the gaming/e-sports market.
If that’s your rationale for owning CRSR stock, then I respect that. Company fundamentals are a better reason to take a position in a stock than the hope of another Reddit-fueled run-up.
Mad Money‘s Jim Cramer might be the most famous of all stock-market commentators.
Recently, he offered his take on Corsair Gaming. Cramer seems to like the company, but he has a warning for retail traders hoping to catch the next meme-stock wave.
“[M]eme anointing is not a way to make money except for the initial buyers, who may be pumping and then dumping, and the short sellers who come in when the stock is impossibly high for the day,” Cramer explains.
I couldn’t agree more. The recent pop-and-drop in CRSR stock is a textbook example of how amateur traders can get crushed if they get into a meme stock at the wrong time.
Cramer also pointed out that Corsair Gaming “is considered a pandemic play and now people want to go out, not stay in and play video games.”
So, even outside of the whole meme-stock phenomenon, there’s a reason to apply caution with CRSR stock now.
The Bottom Line
I certainly don’t recommend buying or avoiding a stock just because Cramer has an opinion on it. We all need to make our own decisions.
Still, Cramer’s points are duly noted.
CRSR stock could be interesting as a bet on the gaming/e-sports market’s long-term growth.
But if you’re thinking about cashing in on the meme-stock phenomenon, it’s best to just stay away altogether.
On the date of publication, David Moadel 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.