Unfortunately for some shareholders, the Clarus Corporation (NASDAQ:CLAR) share price has dived 27% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 50% share price decline.

Even after such a large drop 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. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

What Does Clarus' Recent Performance Look Like?

Recent times have been pleasing for Clarus as its revenue has risen in spite of the industry's average revenue going into reverse. One possibility is that the P/S ratio is moderate because investors think the company's revenue will be less resilient moving forward. Those who are bullish on Clarus will be hoping that this isn't the case, so that they can pick up the stock at a slightly lower valuation.

How Is Clarus' Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Clarus' to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 32% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 1.9% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should demonstrate some strength in company's business, generating growth of 3.3% as estimated by the five analysts watching the company. This isn't typically strong growth, but with the rest of the industry predicted to shrink by 1.4%, that would be a solid result.

Despite the marginal growth, we find it odd that Clarus is trading at a fairly similar P/S to the industry. It looks like most investors aren't convinced the company can achieve positive future growth in the face of a shrinking broader industry.

The Final Word

With its share price dropping off a cliff, the P/S for Clarus looks to be in line with the rest of the Leisure industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our examination of Clarus' analyst forecasts revealed that its superior revenue outlook against a shaky industry isn't resulting in the company trading at a higher P/S, as per our expectations. Given the glowing revenue forecasts, we can only assume potential risks are what might be capping the P/S ratio at its current levels. Perhaps there is some hesitation about the company's ability to keep swimming against the current of the broader industry turmoil. It appears some are indeed anticipating revenue instability, because the company's current prospects should normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Clarus (1 makes us a bit uncomfortable) you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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