Maran Partners - Clarus: Hidden Lottery Tickets
Summary
- While Clarus wound up being a meaningful detractor to performance last year, it could have been much worse.
- Following the options-fueled squeeze higher and then rapid sell-off over the summer, CLAR shares fell further in November.
- While the near-term outlook is somewhat cloudy, investors seem to be pricing Clarus as if it will never grow again.
- An overreaction set up a multi-year period in which Clarus would appreciate more than 8x from lows to highs.
- I’m very excited about the forward compounding prospects of our CLAR position.
apomares
The following segment was excerpted from this fund letter.
Clarus (NASDAQ:CLAR)
While Clarus wound up being a meaningful detractor to performance last year, it could have been much worse. We have held Clarus in various position sizes for seven years, and the company has performed well for us. With this history, it would have been easy to fall in love with the stock. But I try to remain rational and level-headed with respect to all of our positions, even those that we have grown to know very well.
As changing tides in August lifted the stock for seemingly non-fundamental reasons, I took advantage of the upward volatility to sell the majority of our position. Of course, I should have sold all of our position in mid-August rather than just most of it (another lesson from 2022), but hindsight is 20/20 and I never would have expected the stock to fall as far is it ultimately did.
Following the options-fueled squeeze higher and then rapid sell-off over the summer, shares fell further in November as Clarus reported that it would likely not grow EBITDA y/y in 2022 as previously expected. Clarus’ direct-to-consumer business remains strong, but inventory destocking by large-format outdoor retailers led to a slowdown in orders over recent months.
While the near-term outlook is somewhat cloudy, investors seem to be pricing Clarus as if it will never grow again. This is myopic. Outdoor activities, climbing, and overlanding are all secular growth categories, even if Covid pulled forward demand in some of them. I think each of Clarus’ businesses will be larger several years from now.
Last autumn’s sell-off in Clarus’ stock reminds me of when we first made Clarus a large position, in 2015.
Clarus had announced the exploration of strategic alternatives, which many traders took to mean that Clarus was attempting to sell itself. When Clarus only sold two of its divisions, rather than the whole company, arbitrageurs and short-term traders dumped the stock, and it went far lower than I would have thought reasonable—falling by two thirds. While painful at the time, that overreaction set up a multi-year period in which Clarus would appreciate more than 8x from lows to highs.
This time around, the stock fell 75% from prior highs on both non-fundamental and transitory reasons. Expectations are very low, and the valuation is attractive. I believe Clarus could sell its brands for more than twice where the stock has recently traded. There are even some “hidden lottery tickets” in the current setup. While patience may be required, I’m again very excited about the forward compounding prospects of this position, to which I added in November.
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