Maran Capital Management, an investment management firm, published its third-quarter 2021 investor letter – a copy of which can be downloaded here. In the third quarter of 2021, Maran Partners Fund returned -3.1%, net of all fees and expenses, which brings the year-to-date return to +48.3%, net. Over the past five years, the fund has compounded at the annualized rate of +22.2%, net of all fees and expenses. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.
Maran Capital Management, in its Q3 2021 investor letter, mentioned Clarus Corporation (NASDAQ: CLAR) and discussed its stance on the firm. Clarus Corporation is a Salt Lake City, Utah-based glove and mitten manufacturing company with a $1.01 billion market capitalization. CLAR delivered an 80.29% return since the beginning of the year, while its 12-month returns are up by 69.92%. The stock closed at $27.49 per share on November 2, 2021.
Here is what Maran Capital Management has to say about Clarus Corporation in its Q3 2021 investor letter:
“In my 2Q 2018 letter, I shared my (then) perspective on Clarus’s potential. The stock was trading at approximately $8 per share, and I laid out a potential path to $35 per share. Careful readers may recall the math:
15 + 5 + 5 + 3 + 7 = $35
I have written occasionally about the importance of continually re-underwriting theses given changing information – of frequently checking one’s hypothesis, in a Bayesian-Laplacian manner, against new data. Had I put a firm “price target” of $35 on Clarus three years ago, perhaps I would consider trimming or selling the stock as it approaches that level.
Instead, given a recent detailed re-underwriting of the company, I have updated my opinion about Clarus’s potential value several years out. Given meaningful progress on apparel, footwear, retail stores, the company’s sporting segment, and capital allocation (including the recent acquisition of Rhino-Rack, with more to come), I now believe the stock could climb above $60 per share over the next three years.
Here’s the updated math:
25 + 15 + 10 + 10 = $60
• Black Diamond could be worth approximately $1bn, or $25+ per share, on $400mm+ of sales at a 15% EBITDA margin. 2.5x sales would not be particularly aggressive for a business of this caliber.
• Rhino-Rack could grow to approximately $500mm+ of value, or $15 per share, as EBITDA doubles over the next few years to $40mm+.
• Sierra + Barnes: $350mm+, or $10 per share, of potential intrinsic value on $125mm+ of highmargin revenue.
• Free cash flow generation and capital allocation could create another $10 per share of value over the next several years.
This week, Clarus conducted a secondary offering to raise additional capital to invest in further growth and M&A. While the share count will grow by ~8%, I believe the capital will be put to accretive use in short order. Clarus has been an extraordinary steward of capital and deserves the benefit of the doubt with respect to capital allocation decisions.
The secondary offering caused the stock to pull back by over 15% from recent highs. We used this volatility to add meaningfully to our already large position. Near-term catalysts include the 3Q earnings call (results, already pre-announced, were fantastic), the potential announcement of additional accretive acquisitions (one of the stated uses of capital raised in the secondary), and perhaps additional sell-side research coverage (as two banks that don’t yet cover the stock assisted on the secondary). I believe there is a long runway for Clarus results to continue to “meet or exceed” expectations and that its growth prospects are far better than what the current valuation implies. Management remains aligned with shareholders via its ~20% equity ownership position.”
Strahil Dimitrov/Shutterstock.com
Based on our calculations, Clarus Corporation (NASDAQ: CLAR) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. CLAR was in 17 hedge fund portfolios at the end of the first half of 2021, compared to 15 funds in the previous quarter. Clarus Corporation (NASDAQ: CLAR) delivered a -7.42% return in the past 3 months.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. Recently we came across a high-growth stock that has tons of hidden assets and is trading at an extremely cheap valuation. We go through lists like the 10 best growth stocks to buy to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage.
Disclosure: None. This article is originally published at Insider Monkey.
