Here's a great article that was at individualinvestor.com this morning:
Individual Investor
Clarus Corp.: B2B Bargain
Senior Analyst: Garrett Bekker (3/17/00)
Despite the correction that took place in the NASDAQ Composite earlier this week, most B2B stocks are still trading at valuations that are nothing short of meteoric.
That undoubtedly leaves investors who missed out on the early action kicking themselves for the missed opportunity and wondering how they can get in the game without paying multiples that are several hundred times current sales projections.
Well, there are some solutions to this puzzle. One being Clarus Corp. (NASDAQ: CLRS - news), which is moving into the B2B e-procurement space and competing with the likes of Commerce One (NASDAQ: CMRC - news), Ariba (NASDAQ: ARBA - news) and PurchasePro.com (NASDAQ: PPRO - news). However, we think there's more than enough room for Clarus.
Granted, Clarus' chart for the past six months has closely tracked the trend in the NASDAQ Composite. The stock came out of nowhere in late October and enjoyed a virtually uninterrupted climb to its 52-week high of $144 on March 9. Since then, the shares have shaved a little of the foam off that head of steam. Thursday, the stock gained $5 to $120.
Some of the enthusiasm for Clarus can be traced not just to the euphoria over B2B Web stocks, but predictions from market research firm International Data Corp. (IDC), which says that the market for e-procurement solutions, which is Clarus' specialty, will rise from $187 million in 1998 to more than $8 billion by 2003.
Procurement involves the purchase of operating resources necessary to run a firm, and includes such items as office and computer supplies, travel and expense management, MRO, or maintenance, repair and operations, and legal and other administrative services.
Procurement has historically been a gaping inefficiency for most companies' operations, involving endless paper shuffling between employees, managers and suppliers. As often as not, the transaction-processing costs of procuring operating resources exceed the value of the goods themselves. According to consulting firm Aberdeen Group, the average cost of processing an order for operating resources is $107.
Moving the procurement process to the Web can slash this sum to $30 in some instances, Aberdeen estimates. Substantial cost reductions can be achieved by eliminating much of the paper involved in processing an order and reducing the time required for the order. The Web can also serve to eliminate unauthorized or ``maverick' buying by employees.
Clarus has a number of products that can help in this area, including Expense 2.0, eProcurement 5.0 and View 3.0. For example, Clarus helped MasterCard reduce the average cost of processing orders from $125 to $40, and reduced the time to process an order from four days to 1.25 days.
Clarus also recently announced a reverse auction capability. Reverse auctions are a hot new area of B2B e-commerce, which operate like the name implies: Instead of numerous buyers bidding on one item and driving the price up, a single buyer can request a product for purchase, and sellers compete to make the sale, driving the price down.
Like PurchasePro.com, Clarus is targeting small-and medium-sized enterprises. Such firms are largely under the radar screen of companies like Ariba and Commerce One, which have focused primarily on large corporate customers.
Clarus is attacking the small to medium business segment with cheaper software licenses that typically run in the $600,000 to $700,000 range versus license fees for Ariba and Commerce One that can run into the millions, and subscription based pricing that allows buyers to pay a small monthly fee per user - which is typically less than $30 - versus the substantial up-front costs of purchasing a software license.
Clarus' solutions are also designed to run on Microsoft's (NASDAQ: MSFT - news) Windows operating system, which is still the preferred software platform for small businesses.
In addition to its e-procurement offerings, Clarus provides a software platform that can be private-labeled by companies that want to set up their own B2B e-marketplaces. Forrester Research predicts that the number of B2B e-marketplaces will grow to over 10,000 by 2003, some 20 times greater than the roughly 500 currently in operation.
The main reason we like Clarus is that, for a B2B company, the stock appears to be undervalued relative to its peers. This week, Clarus has been trading at roughly 50 times calendar 2000 revenue forecasts, at least half of what other companies in the sector are trading at. That valuation puts the company at less than half of PurchasePro.com's 120 revenue multiple for fiscal 2000, roughly one-third of Commerce One's multiple of nearly 150 times, and only one-fourth Ariba's multiple of 200 times this year's revenue projections.
Moving forward, Clarus' valuation seems even more compelling when we consider revenue projections for 2001. Clarus is trading at just 18 times 2001 revenue, which is only one-fourth that of Commerce One at 72 times 2001 sales and slightly more than a third of PurchasePro.com's multiple of roughly 50.
While we believe that Ariba and Commerce One are the early leaders in B2B space and probably deserve a premium multiple, we think the gap between Clarus and the rest of the group is excessive. In particular, we think PurchasePro.com is a better comparable for Clarus, given that they are both targeting the small to medium segment of the market.
With Clarus trading at nearly one-third of PurchasePro.com's multiple of next year's sales, we think a strong argument can be made that Clarus will move up.
A final catalyst for an upward move is that there aren't a lot of analysts on the Street that are following Clarus. We expect this to change shortly as word gets out, and as the analysts roll out their stock recommendations and target prices, we expect this to give a boost to Clarus in the near term.
Bottom Line:
We think Clarus represents a compelling value in the market for B2B e-commerce that should be realized as the company gains more and more attention. |
