Clarus’s stock price has taken a beating over the past six months, shedding 24.8% of its value and falling to a new 52-week low of $3.30 per share. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy Clarus, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Despite the more favorable entry price, we're cautious about Clarus. Here are three reasons why CLAR doesn't excite us and a stock we'd rather own.
Why Do We Think Clarus Will Underperform?
Initially a financial services business, Clarus (NASDAQ: CLAR) designs, manufactures, and distributes outdoor equipment and lifestyle products.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Clarus grew its sales at a weak 2.9% compounded annual growth rate. This fell short of our benchmarks. 
2. EPS Trending Down
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for Clarus, its EPS declined by 16.2% annually over the last five years while its revenue grew by 2.9%. This tells us the company became less profitable on a per-share basis as it expanded.
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Clarus’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
Clarus falls short of our quality standards. Following the recent decline, the stock trades at 10.3× forward price-to-earnings (or $3.30 per share). This valuation tells us a lot of optimism is priced in - you can find better investment opportunities elsewhere. We’d suggest looking at one of our top digital advertising picks.
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