Daily Double
November 18, 1999

Clarus Corp.

Ticker: (Nasdaq: CLRS)
Phone: 770-291-3900
Website: www.claruscorp.com
Price (11/17/99): $42 1/2

By Paul Larson (TMF Parlay)

How Did it Double?

Put the following three words together -- "Microsoft" -- "Cisco" -- "alliance" -- and you pretty much have the story of why the stock of Clarus has taken off like a rocket over the past month. On October 26, the company announced that it was chosen by an Internet venture backed by technology titans Microsoft (Nasdaq: MSFT) and Cisco Systems (Nasdaq: CSCO) to be the premier provider of procurement software for business-to-business e-commerce at the venture's new site.

Not only did this bit of news get investors thinking about the potential windfall from the deal, but the announcement also validated Clarus as a real player in the emerging e-commerce industry. Needless to say, the stock did extremely well the day the announcement was made. The shares doubled in a single trading session, going from $10 5/16 all the way up to $21 in one short day. Volume was also extremely heavy at nearly 6 million shares, or about 60 times its normal trading volume.

Investor interest in the company continues to ride high as trading volumes have remained above normal. The share price has also continued to ascend in recent weeks as the company repositions itself to take advantage of the emerging e-commerce industry.

Business Description

Based in Atlanta, Clarus Corp. is one of today's leading providers of business-to-business e-commerce software applications for controlling operational resources of companies. Clarus products are essentially used to control the non-production resources of a company, in theory making a company much more efficient operationally. The most common use for the Web-based software is for procurement.

Clarus has recently undergone some transformations to focus on e-commerce. Part of this changing focus finds the company in the process of selling its Enterprise Resource Planning (ERP) software business to Geac Computer Systems (Nasdaq: GEACF).

Financial Facts

Income Statement
12-month sales: $42.4 million
12-month income: ($19.1 million)
12-month EPS: ($2.49)
Profit Margin: N/A
Market Cap: $471.5 million

Balance Sheet
Cash: $5.9 million
Current Assets: $17.5 million
Current Liabilities: $16.5 million
Long-term Debt: None

Ratios
Price-to-earnings: N/A
Price-to-sales: 11.1

*Note: Results are "as reported" and do not take into account Clarus' recent business divestiture

How Could You Have Found This Double?

Admittedly, Clarus was a stock that was flying under the radar of most investors. While the company had been quietly selling off businesses and repositioning itself as an e-commerce software company, Clarus was not making headlines. However, the Microsoft-Cisco announcement on October 26 should have been a wakeup call that, yes, Clarus was indeed a real player in the emerging e-commerce industry.

Clarus seems to have chosen the right industry as it moves to concentrate on the high-margin and potentially huge business-to-business e-commerce industry. Clarus used to be little more than a sleepy and lagging enterprise resource planning (ERP) outfit. Then it moved from a battle it was losing to a bigger battle it could potentially win.

In addition, there was plenty of insider buying going on at the company earlier this year. This past February no fewer than four Clarus executives and board members combined bought almost $1 million worth of the stock out of their own pockets. There's only one reason that insiders purchase stock -- they expect it to go up. It's also worth noting that the Clarus executive group has seen its purchased shares increase in value approximately ten-fold since this past February.

Where to From Here?

Before one purchases any stock it is important to understand exactly what the company does and how it makes money. With Clarus, this is not exactly an easy exercise since its products are not one an average investor comes in contact with. While business-to-business e-commerce may sound like an exciting field, it's worthwhile to take the extra steps to research the company and the market in order to stay within one's circle of competency.

If Clarus can indeed grab a chunk of the business-to-business matchmaking for supplies, the company stands to benefit greatly. As eBay (Nasdaq: EBAY) has shown in the consumer-to-consumer area, the potential for stellar margins in a field absent inventory is great. And by riding on Microsoft's e-commerce coattails, Clarus has become as strong a company as any in its niche.

That said, Clarus' stock price is largely reflecting much of Wall Street's optimism about the future. With a company heavily in the red trading at over 11x trailing sales (and somewhere near 40x sales once its ERP business unit is backed out from the results), the valuation is steep no matter how you cut it. Also, the company does not exactly have a good track record of adding value since it has bled plenty of red ink in recent years. Analysts don't expect Clarus' money losing ways to stop any time soon as the company is anticipated to lose over $21 million ($1.96 per share) next year. The possibility for awesome profits in the "out" years is certainly there, but investors should thoroughly study first before even thinking about plunking down any cash.

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