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Hawk’s Nest

Unusual Call Buys in Strong Small-Cap Clarus (CLAR)

by | Oct 28, 2021

Clarus (CLAR) one of the more unusual trades on 10/27 with a buy of 1000 May $25 ITM calls for $4.50, strong small-cap in 2021 up over 80%. CLAR has some smaller bullish open interest including 700 May $25 calls from 10/14 and 400 of the November $25 calls from 6/15. Shares traded up near 52-week highs recently before pulling back this week to a big volume node at $27 following a secondary. CLAR has been a strong trending name and current weekly flag measures to $37 on a breakout, setting up a nice potential risk/reward near current levels if we can see some stabilization. The $945M company trades 18.77X earnings, 3.27X sales, and 140X cash. CLAR focuses on outdoor equipment and lifestyle products for climb, ski, mountain and other sports. Their two business lines are Black Diamond and Sierra, the former a provider of activity-based apparel like shells, insulation, and pants as well as accessories like carabiners and harnesses. Sierra makes bullets and other ammunition products for rifles. The company views their products as essential among the top tier individuals within these niche areas such as athletes and other brand ambassadors while a huge growth opportunity exists as they expand to enthusiasts and other spectators. CLAR has been building up brands within each category and expanding both within the US and overseas as they look to lead in some of these big categories at a time when interest in outdoor activities is surging. In August, they bought Rhino Rack, a maker of roof racks for cars to transport bikes, skis, and more. They noted on the call why it fit so well:

“The great thing about the Rhino-Rack business is that we’re able to focus on multiple tiers of distribution, one being that of OEMs and partnering with players like Polaris or Ford or Toyota or Jeep or whomever to develop rack systems, specifically for their new launch products. Then there is the aftermarket automotive business, which is where Rhino-Rack has really played in the United States over the last few years. And then we see a huge opportunity in this outdoor segment that is growing, which is a combination of micro-adventures meets overlanding. And we think that, that over the next 3 to 4 years is the fastest-growing category of the rack business. And if you’ve seen what others have posted, the demand similar to that of BD or even with Sierra and Barnes, the demand by the consumer far exceeds the supply right now.”

The company sees the global outdoor apparel market at $12.7B while the North American hunting market is $9.1B and there’s plenty of smaller areas like rock climbing that are growing at double-digits too. CLAR raised guidance for Q3 on 10/18.

Analysts have an average target for shares of $33 with a Street High $40 from DA Davidson. The firm was out positive on 10/19 raising their outlook citing strength in both the Black Diamond and Sierra product lines while management appears to be effectively navigating supply chain issues with successful execution of shipping products from Asia to the U.S. Lake Street positive on the name as well noting that they’re seeing a better product mix recently which is helping margins. Hedge fund ownership fell 17.5% last quarter.