1 Magnificent Dividend Stock Down 69% to Buy Before It Soars


Identity verification specialist Clear Secure (YOU 4.15%) is a shining example of why it is generally better for investors to wait a few quarters after a company’s initial public offering (IPO) before buying its stock. After it debuted in June 2021 at $31, it spiked above $60 per share in its first few weeks of trading. But since then, it has dropped by nearly 70% from its peak.

However, the beauty of being patient in this scenario is that not only is the stock available at a much lower price now, but the company has dramatically improved its operations. It has grown its revenue by 166% since 2021 and achieved a robust 33% free-cash-low (FCF) margin in 2023. Clear Secure also pays a dividend that at the current share price yields 1.2%.

With identity security poised to become increasingly critical in today’s tech-dense world, here’s why Clear Secure is poised to soar higher.

Meet Clear Secure

Founded in 2010, Clear Secure now serves 20 million members — a figure that grew by 33% in 2023. Its app lets users enroll on its platform using their driver’s license (or passport) and a selfie to be biometrically verified everywhere in the Clear ecosystem afterward. For example, free users can input their flight number to integrate all of their flight’s data (gate numbers, walking times, or Uber pick-up timing) and even reserve a dedicated time slot to go through security at an airport.

However, the company is more famous for the dedicated entry lanes it provides to its 6.7 million Clear Plus members at 56 airports in the United States (and 20 more globally). For $189 a year, Plus members speed through these priority lanes thanks to their pre-verified status. This time-saving benefit is considered a no-brainer value for millions of frequent flyers, which helps explain its 23% membership growth rate in the fourth quarter of 2023.

But this is only a portion of Clear Secure’s streamlining capabilities at the airport. Recently, the company partnered with the Transportation Security Administration (TSA), launching its TSA PreCheck Enrollment Provided by Clear, further allowing flyers to zip through the airport.

After completing their PreCheck enrollment, members pay $1.30 a month to receive expedited security screening while getting “to keep their coat and shoes on and their laptop in their bag,” as Chief Executive Officer Caryn Seidman-Becker put it. Currently only launched in Newark, this new partnership is a significant opportunity for Clear Secure, as the two complementary services offer immense cross-selling potential as they continue rolling out in new airports.

Best yet for investors — Clear Secure’s identity network is not just for airports. the company has priority lanes at 19 sports and entertainment arenas. Transferring the company’s identity-verification prowess from airports to stadiums and other venues looks like a natural growth opportunity for the company. As its two-sided network of members and business partners keeps growing, it should grow ever more robust, as it will become more useful both for the venues and their customers.

Parent and child walk through an airport, with the child riding on top of a rolling luggage bag.

IMAGE SOURCE: GETTY IMAGES.

Free cash flow galore fuels a growing dividend

As promising as Clear Secure’s growth into new airports and verticals is, investors may be more impressed with its incredible cash generation. Boasting a 33% FCF margin, the company has not only reached breakeven, but morphed into a genuine cash cow.

YOU Revenue (TTM) Chart

YOU Revenue (TTM) data by YCharts.

Thanks to its booming FCF figures (and the proceeds from its IPO), the company’s cash balance has grown to over $700 million, yet it carries a diminutive market capitalization of $1.8 billion.

YOU Market Cap Chart

YOU Market Cap data by YCharts.

These surprising totals highlight that roughly 40% of Clear Secure’s value is the excess cash sitting on its books — meaning it has ample funds for dividends and share repurchases. The company only has to use about 17% of its FCF to fund its payout at the current level, leaving it with plenty of capacity for dividend hikes.

Furthermore, with $125 million remaining on its existing share repurchase authorization, management will likely continue buying back stock while it’s trading at a wildly cheap price-to-FCF ratio of 9.

Clear Secure’s deeply discounted valuation

Clear Secure’s valuation would be more appropriate for a failing stock, though management forecasts 30% growth for sales and FCF in 2024.

YOU Price to Free Cash Flow Chart

YOU Price to Free Cash Flow data by YCharts.

This combination of high expected growth rates and a deeply discounted stock valuation could act like a coiled spring that propels the company’s share price upward. While some of Clear Secure’s cheap pricing could stem from privacy concerns tied to the biometric data it stores, the Department of Homeland Security has certified its information security program with the highest possible safety rating.

As with any cybersecurity-related company, this pristine safety rating is crucial to maintain lest the company lose the trust of its customers (and thereafter the market) from breaches similar to what happened with its peer, Okta. However, thanks to Clear Secure’s combination of high growth rates, expansion potential, immense profitability, and cheap valuation, I’m happy to accept this added (and unavoidable) bit of risk and buy shares of this brilliant dividend stock.



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