YETI HOLDINGS INC (NYSE:YETI) Fits the Peter Lynch GARP Investment Strategy

YETI HOLDINGS INC (NYSE:YETI) has become a notable option for investors using the Peter Lynch growth-at-a-reasonable-price (GARP) method. This approach, made famous by the renowned Fidelity fund manager, focuses on finding companies with consistent earnings growth, sound financials, and fair valuations, qualities that help avoid overpaying for growth while still targeting long-term gains. Lynch's model looks for businesses increasing earnings each year by 15-30%, carrying little debt, showing high profitability, and trading at multiples that do not assume unrealistic future expansion.

Growth Metrics and Sustainability

YETI displays the managed growth Lynch favored, with important measures matching his investment criteria:

• 5-Year EPS Growth: 18.24% (fitting within Lynch's 15-30% target range)
• Debt-to-Equity Ratio: 0.09 (much lower than Lynch's preferred 0.25 limit)
• Current Ratio: 2.52 (surpassing the minimum 1.0 level easily)

These numbers show the company's capacity to increase earnings at a maintainable rate without high debt, a key part of Lynch's thinking. The Austin-based outdoor products company has reached this growth while keeping financial control, steering clear of the speculative risks common in high-growth narratives.

Profitability and Efficiency

Lynch focused heavily on profitability measures as signs of business quality and market position:

• Return on Equity: 22.07% (well above the 15% minimum level)
• Return on Invested Capital: 18.50% (showing good use of capital)
• Operating Margin: 13.13% (demonstrating solid operational performance)

These measures exceed industry norms and show YETI's skill in turning sales into profits. The company's strong branding in coolers, drinkware, and outdoor gear has resulted in pricing strength and good margins, traits Lynch held in high regard for long-term holdings.

Valuation Assessment

The company's valuation measures offer a strong case for GARP investors:

• P/E Ratio: 13.37 (under industry and S&P 500 averages)
• Forward P/E: 12.72 (showing continued valuation appeal)
• PEG Ratio: 0.73 (much lower than Lynch's 1.0 limit)

The PEG ratio, which Lynch viewed as vital for valuing growth stocks, implies the market could be pricing YETI's growth potential too low compared to its earnings multiple. This mix of fair multiples and good growth forms the "reasonable price" element key to the strategy.

Financial Health and Stability

Lynch consistently favored companies with solid balance sheets able to endure economic shifts:

• Altman-Z Score: 6.69 (showing minimal bankruptcy risk)
• Positive Cash Flow: Steady cash generation from operations
• Declining Shares Outstanding: Sign of stock buyback programs

The company's financial health score of 8/10 indicates strong liquidity and solid financial positions, with notable ability in debt handling and working capital management. These aspects lower investment risk and offer room for continued growth efforts.

Fundamental Analysis Summary

Our full fundamental analysis gives YETI a score of 7/10, noting very good profitability and health scores combined with appealing valuation. The company is a leader in its industry for return measures and margin performance while trading at lower multiples compared to similar companies. While growth is predicted to slow from past highs, the blend of financial soundness, profitability, and fair valuation forms a notable profile for long-term investors.

For investors looking for other companies matching Peter Lynch's investment rules, our stock screener offers frequently refreshed results based on these criteria.

YETI represents the kind of business Lynch may have liked, a company making products people recognize and use, expanding at a maintainable speed, exercising financial control, and available at a fair price. While history does not ensure future outcomes, the company's fit with Lynch's investment criteria makes it worth review for GARP-focused portfolios.

Disclaimer: This analysis is for informational purposes only and should not be considered investment advice. Investors should conduct their own research and consult with a financial advisor before making investment decisions.