YETI HOLDINGS INC (NYSE:YETI): An Undervalued Stock with Strong Fundamentals

In the world of investing, identifying undervalued stocks that still show strong basic fundamentals is a cornerstone of value investing. This approach, started by Benjamin Graham and later improved by investors like Warren Buffett, looks for companies trading below their real value while keeping healthy financials, profitability, and growth potential. One way to find such opportunities is through screening tools that filter for stocks with high valuation ratings, indicating they are priced well next to others, along with good scores in health, profitability, and growth. YETI HOLDINGS INC (NYSE:YETI) appears as a candidate from such a screen, calling for a closer look for value-focused investors.

Valuation Metrics

YETI’s valuation profile is a key strength, with a ChartMill Valuation Rating of 7 out of 10. This score reflects metrics that suggest the stock is trading at a discount compared to industry averages and wider market indices. For value investors, an attractive valuation is critical because it implies a margin of safety, the buffer between market price and real value that helps lower downside risk. Specific highlights from the fundamental analysis report include:

• A Price/Earnings (P/E) ratio of 13.27, notably below the S&P 500 average of 27.20 and cheaper than 93.94% of peers in the leisure products industry.
• A Forward P/E of 12.62, which is lower than 90.91% of industry competitors and suggests continued undervaluation relative to future earnings expectations.
• Strong performance in Enterprise Value to EBITDA and Price/Free Cash Flow ratios, where YETI is priced more affordably than over 80% of its industry peers.

These figures indicate that YETI is not only reasonably priced but may offer upside potential if market views align more closely with its basic worth.

Financial Health

A company’s financial health is paramount in value investing, as it lowers the risk of insolvency and supports long-term stability. YETI earns a strong Health Rating of 8 out of 10, reflecting good liquidity and solvency. Key points from the report highlight this strength:

• An Altman-Z score of 6.66, signaling low bankruptcy risk and doing better than 84.85% of industry peers.
• A Debt-to-Equity ratio of 0.09, indicating very little use of debt financing and alignment with industry norms.
• Healthy liquidity metrics, including a Current Ratio of 2.52, which shows sufficient ability to meet short-term obligations.

This financial solidity provides a cushion against market swings and economic downturns, aligning with the value investing principle of prioritizing companies with strong balance sheets.

Profitability

Profitability is a sign of a quality business, and YETI does very well here with a perfect Profitability Rating of 10 out of 10. High profitability often links to competitive advantages and efficient management, both of which are valued in value investing. The report details:

• A Return on Invested Capital (ROIC) of 18.50%, surpassing 96.97% of industry peers and indicating effective use of capital.
• Strong margins, including a Profit Margin of 9.73% (doing better than 96.97% of peers) and an Operating Margin of 13.13% (beating 93.94%).
• Steady improvement in margins over recent years, suggesting operational efficiency and pricing strength.

These metrics not only highlight YETI’s ability to generate earnings but also support the idea that the company is fundamentally sound beyond its undervalued price.

Growth Prospects

While growth is secondary to valuation and safety in value investing, it still plays a role in judging future potential. YETI’s Growth Rating of 4 out of 10 reflects moderate but stable historical performance, though with some caution around slowing future estimates. Pertinent details include:

• Revenue growth averaging 14.90% annually over recent years, indicating strong past expansion.
• Earnings Per Share (EPS) growth of 18.24% on average historically, though recent trends show a slowdown to 5.51% year-over-year.
• Projected revenue and EPS growth in the low single digits for coming years, suggesting a maturation phase rather than fast expansion.

For value investors, this measured growth profile is acceptable when paired with deep valuation discounts and high profitability, as it lowers the risk of overpaying for high-growth that may not happen.

Conclusion

YETI HOLDINGS INC presents a strong case for value investors, combining an undervalued stock price with high profitability, strong financial health, and respectable historical growth. This alignment with value investing criteria, where margin of safety, financial stability, and earnings strength take priority, suggests that YETI may be well-placed for long-term appreciation as the market recognizes its real worth. Investors should, however, be aware of the slower growth projections and conduct further due diligence to ensure it fits their individual strategy.

For those interested in finding similar undervalued opportunities, additional screened results can be found using this Decent Value Stocks screen.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Readers should perform their own research or consult a financial advisor before making investment decisions.