We came across a bullish thesis on Clarus Corporation (CLAR) on Substack by Stock Analysis Compilation. In this article, we will summarize the bulls’ thesis on CLAR. Clarus Corporation (CLAR)’s share was trading at $4.28 as of Nov 20th. CLAR’s trailing and forward P/E were 19.21 and 16.78 respectively according to Yahoo Finance.
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Clarus presents a compelling and asymmetric investment opportunity, trading at a significant discount despite its solid financial position and valuable brands. With a large cash balance, zero debt, and strong brand equity, the company is positioned to generate free cash flow in the coming years, even amid the current challenges in the outdoor industry, which is experiencing a slowdown after a Covid-driven demand surge. Despite these headwinds, Clarus’s brands, particularly Black Diamond Equipment and Rhino Rack/MAXTRAX, are well-positioned to reaccelerate and continue driving value.
At the time of writing, Clarus’s enterprise value, adjusted for its year-end cash balance, is just under $100 million. This valuation seems disconnected from the private market value of its remaining businesses. The recent sale of Clarus’s bullet and ammunition business for $175 million highlights the potential value that could be unlocked by selling its other businesses. While the exact bids for Black Diamond and Rhino Rack/MAXTRAX are uncertain, reasonable estimates suggest each could be worth between $150 million and $250 million, implying a combined private market value of $300 million to $500 million. If the businesses generate $40-50 million in EBITDA in the next couple of years, the higher end of this range becomes more likely.
The public market undervalues these brands, with Clarus’s current stock price hovering around $4 per share. Based on a conservative estimate of $300 million in private market value for its brands, the stock could trade at approximately $10 per share. If the brands fetch closer to $500 million in a potential sale, the stock could reach $15 per share. Additionally, Clarus has other assets that contribute to its overall value, including its ongoing sale of the avalanche transceiver business (PEIPS) and valuable real estate holdings in Salt Lake City, which could add nearly $1 per share to its value.
With nearly $2 per share in net cash expected by year-end and the possibility of unlocking significant value through asset sales, Clarus offers an exceptional risk/reward scenario. The company is trading at a substantial discount to its private market value, making it an attractive opportunity for investors willing to look beyond the current market sentiment.
Clarus Corporation (CLAR) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 15 hedge fund portfolios held CLAR at the end of the third quarter which was 10 in the previous quarter. While we acknowledge the risk and potential of CLAR as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CLAR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.