CLAR - Maran Partners - Clarus: An Attractive Situation Despite Headwinds
Summary
- Clarus Corp.'s stock price changed a lot, in both directions, during the quarter.
- I attributed CLAR’s rise to non-fundamental factors and took advantage of the stock’s move higher to trim our position meaningfully.
- Clarus is certainly facing several headwinds, but I don’t believe that these justify the current stock price.
- Given Clarus' valuation, I believe this is an attractive situation.
The following segment was excerpted from this fund letter .
Clarus Corp. ( CLAR )
Clarus has been a long-time top-five position, so it may seem from the outside like the holding is on autopilot. It is not. I frequently re-underwrite all of our positions as new information comes in and as stock prices change. Clarus is no exception.
For Clarus, a lot of new information came in during the third quarter—though much of it nonfundamental—and the stock price also changed a lot, in both directions. Clarus entered the third quarter at approximately $19/sh, increased to a high of $29/sh, and later fell as low as $12/sh. It increased by 50%+ then declined by 50%+, all in a few months.
While I generally invest with a long horizon and try to be patient when warranted, I am also pragmatic. Our fund’s smaller size allows me to be nimble when warranted.
Given the speed and magnitude of Clarus’ increase during mid-August, accompanied by a lack of substantive change in the fundamentals, I attributed Clarus’ rise to non-fundamental factors, and took advantage of the stock’s move higher to trim our position meaningfully. By August 19 th , we owned the fewest number of shares that we had owned in years.
Recently, we took advantage of volatility in the other direction, adding back to our position at less than half the price at which we had sold just weeks prior.
Clarus is certainly facing several headwinds—including a promotional retail environment, a weak euro and Australian dollar, and weakness in new car volumes (which impacts its Rhino Rack business)—but I don’t believe that these headwinds justify the current stock price.
Clarus’ enterprise value is around $600 million. If Rhino Rack is worth around $200 million (about 8x EBITDA) and Sierra/Barnes is worth around $200 million (5x EBITDA), the market is implying that the Black Diamond Equipment brand is worth just $200 million (under 0.8x sales and ~6x EBITDA). Another way of framing valuation is that the market is paying a reasonable price for Black Diamond and Rhino Rack and that we are getting Sierra and Barnes for free.
In aggregate, Clarus is trading at around 7.5x EBITDA and at a double-digit normalized cash earnings yield. Given the valuation, the quality of the Clarus brands, the long-term growth outlook, the aligned management team, the recent insider purchases, the share repurchase authorization, the partly nonfundamental set of events that led to the sell-off, and the continued high short interest (eight million shares, or almost one third of the float, at last check), I believe this is an attractive situation.
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Maran Partners - Clarus: An Attractive Situation, Despite Headwinds