Clear Secure Stock: Compelling Contrarian Opportunity After Excessive Sell-Off

Clear Secure Stock: Compelling Contrarian Opportunity After Excessive Sell-Off

Clear Secure Inc Has Massive Potential in $68-Billion Market

While the Nasdaq and the S&P 500 have moved to new heights, stocks that debuted via initial public offerings (IPOs) this year are underwater, with many of them well below their IPO price. But as with any major selling, I look at the situation as an opportunity.

One area of technology I like these days is the digital identity solutions market, especially as the world moves from paper to digital identification. I’m talking about applications that use biometric technology.

To play this, consider Clear Secure Inc (NYSE:YOU). The company develops biometric identity and digital identification solutions for sectors that demand instant identity verification, such as airports and entertainment venues.

The global biometric system market could grow to $68.6 billion by 2025, representing a compound annual growth rate (CAGR) of 13.4%. (Source: “Biometric System Market With COVID-19 Impact by Authentication Type,” MarketsandMarkets Research Private Ltd., last accessed December 10, 2021.)

Advertisement

With the economy reopening and more people traveling and going to live events, there should be strong tailwinds for the security solutions sector.

Clear Secure Inc has been rapidly growing its revenues and it has loads of opportunities globally, but the stock market has wrongly punished YOU stock.

After debuting at $38.55 in its June IPO, Clear Secure stock spiked to $65.70 in August.

The subsequent months, however, have been disastrous, with YOU stock falling to a low of $25.00 on December 6, which I view as an aggressive contrarian opportunity.

Chart courtesy of StockCharts.com

Accelerating Revenues Support Higher YOU Stock Price

Clear Secure Inc has only reported two years of financial results, but the numbers so far have been strong. Its revenues grew from $192.3 million in 2019 to $230.8 million in 2020. (Source: “Clear Secure Inc.” MarketWatch, last accessed December 10, 2021.)

Analysts estimate that the company’s revenues will rise to $251.3 million in full-year 2021 and to $377.7 million in 2022. (Source: “Clear Secure, Inc. (YOU),” Yahoo! Finance, last accessed December 10, 2021.)

This values Clear Secure at 5.2 times its consensus 2022 revenue estimate. That isn’t cheap, but it’s reasonable, given the high multiples in the technology sector.

For 2019 and 2020, Clear Secure Inc reported losses in terms of earnings before interest, taxes, depreciation, and amortization (EBITDA) and generally accepted accounting principles (GAAP) diluted earnings per share (EPS), but both types of losses narrowed in 2020.

Fiscal YearEBITDA (Millions)GAAP Diluted EPS
2019-$48.9-$0.37
2020-$9.5-$0.06

(Source: MarketWatch, op. cit.)

On an adjusted basis, Clear Secure is expected to narrow its loss to $1.12 per diluted share in 2021 and to $0.58 per diluted share in 2022. (SourceYahoo! Finance, op. cit.)

Clear Secure Inc still holds $206.1 million in cash from its IPO, which should allow the company some time to sort things out.

Analyst Take

Institutional ownership of Clear Secure stock is significant. About 80 institutions hold a 98.6% stake in the outstanding shares. So far, institutional investors haven’t been selling their shares of Clear Secure Inc. (SourceYahoo! Finance, op. cit.)

As mentioned earlier, Clear Secure’s valuation isn’t cheap, but it also isn’t unreasonable. Given the major share-price deterioration and tailwinds in the biometric and digital identification space, YOU stock looks like a compelling opportunity.