Biometric security company Clear Secure Inc. (YOU), which is headquartered in New York City, made its stock market debut on June 30, 2021, and gained nearly 30% in early trading on its first day. The company has established itself as a pioneer in biometric security services by providing a secure identification platform, a multi-layered infrastructure consisting of a front-end–including enrollment, verification–and a strong, secure, and scalable back-end.

However, YOU’s shares have plummeted 41.3% in price over the past three months and 42.5% over the past month to close yesterday’s trading session at $26.30. Though the company made significant progress after shifting to biometric screening services to capitalize on the increased travel restrictions during the COVID-19 pandemic, its financials are yet to reflect the benefits of the strategic shift.

In addition, YOU is currently trading at a premium valuation, considering its poor prospects. In terms of its forward EV/Sales, the stock is currently trading at 6.54x, which is 58.1% higher than the 4.13x industry average. Furthermore, YOU's 7.88x forward Price/Sales is 95.3% higher than the 4.03x industry average. This, along with YOU's weak profitability, could cause the stock to suffer further price declines in the near term.

Click here to checkout our Cybersecurity Industry Report for 2021

Here is what could shape YOU's performance in the near term:

Poor Financials and Profitability

YOU's operating loss came in at $32.59 million, compared to a $10.68 million in operating income for its third fiscal quarter, ended October 31, 2021. The company reported a $16.92 million net loss, while its loss per share amounted to $0.23 over this period. In addition, its adjusted EBITDA came in at  negative $14.47 million at the end of the quarter.

YOU's 5.98% trailing-12-months levered FCF margin is 49.3% lower than the 11.8% industry average. Also, its EBITDA margin, net income margin, and ROA are negative 32.2%, 4.6%, and 1.4%, respectively. And its $54.11 million trailing-12-months cash from operations is 54.3% lower than the $118.48 million industry average.

POWR Ratings Indicate Bleak Prospects

YOU has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. YOU have a D grade for Growth and a C for Quality. This is justified given the company's poor financials and profitability.

Of the 27 stocks in the D-rated Software – Security industry, YOU is ranked #19.

Beyond what I have stated above, one  can view the YOU ratings for Stability, Value, Momentum, and Sentiment here.

Bottom Line

YOU’s shares have declined 42.5% in price over the past month. Though the company has secured a strong foothold in the biometric security services industry, its financials do not yet reflect that. In addition, given its negative profit margin and lofty valuation, we believe the stock is best avoided now.

How Does Clear Secure Inc. (YOU) Stack Up Against its Peers?

While YOU has an overall D rating, one might want to consider its industry peers, Trend Micro Incorporated (TMICY) and Radware Ltd. (RDWR), having an overall A (Strong Buy) rating.

Click here to checkout our Cybersecurity Industry Report for 2021

YOU shares were trading at $26.00 per share on Tuesday morning, down $0.30 (-1.14%). Year-to-date, YOU has declined -35.00%, versus a 25.27% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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