Slammed 27% Clarus Corporation (NASDAQ:CLAR) Screens Well Here But There Might Be A Catch

Unfortunately for some shareholders, the Clarus Corporation (NASDAQ:CLAR) share price has dived 27% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 50% loss during that time.

In spite of the heavy fall in price, there still wouldn't be many who think Clarus' price-to-sales (or "P/S") ratio of 0.6x is worth a mention when the median P/S in the United States' Leisure industry is similar at about 0.8x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Clarus

What Does Clarus' P/S Mean For Shareholders?

With its revenue growth in positive territory compared to the declining revenue of most other companies, Clarus has been doing quite well of late. Perhaps the market is expecting its current strong performance to taper off in accordance to the rest of the industry, which has kept the P/S contained. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Clarus.

What Are Revenue Growth Metrics Telling Us About The P/S?

Clarus' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered an exceptional 32% gain to the company's top line. However, this wasn't enough as the latest three year period has seen the company endure a nasty 1.9% drop in revenue in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Shifting to the future, estimates from the five analysts covering the company suggest revenue growth will show minor resilience over the next year growing only by 3.3%. Meanwhile, the broader industry is forecast to contract by 1.4%, which would indicate the company is doing better than the majority of its peers.

Even though the growth is only slight, it's peculiar that Clarus' P/S sits in line with the majority of other companies given the industry is set for a decline. Apparently some shareholders are skeptical of the contrarian forecasts and have been accepting lower selling prices.

The Key Takeaway

Clarus' plummeting stock price has brought its P/S back to a similar region as the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Clarus currently trades on a lower than expected P/S since its growth forecasts are potentially beating a struggling industry. We assume that investors are attributing some risk to the company's future revenues, keeping it from trading at a higher P/S. One such risk is that the company may not live up to analysts' revenue trajectories in tough industry conditions. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Clarus (1 is concerning!) that you need to be mindful of.

If you're unsure about the strength of Clarus' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com