CLAR - Clarus Corporation: Worst Is Over But Pain Remains
2024-02-16 10:38:56 ET
Summary
- Clarus’ revenue has grown well during the last decade (CAGR: +11%), although this is primarily driven by M&A, with its organic trajectory less compelling.
- The company has struggled to achieve consistency in its financial performance, with an imbalance of focus between brand/business optimization and new M&A we feel.
- Clarus has shown minimal margin improvement since FY18, despite revenue almost doubling, implying inherently weak operational capabilities.
- Clarus is underperforming its peers and the outlook appears worse with a lack of M&A to boost revenue.
- Clarus’ valuation does not scream value in a world where the risk-free rate is ~5%. We suggest investors avoid this stock.
Investment thesis
Our current investment thesis is:
- Clarus ( CLAR ) is underwhelming commercially. The company has all the foundational hallmarks for success, such as diversification, a global presence, broad expertise and capabilities, and soft industry tailwinds. Despite this, the focus has been on exploiting M&A, which has driven revenue but not necessarily in an accretive manner. Further, operational improvement has been lacking, implying a period of “transformation” is required.
- With a stock like this, only an incredibly low valuation will entice a potential buy rating. This is not the case here and so we rate the stock a sell on commercials.