YETI Holdings Inc (NYSE:YETI) Embodies Peter Lynch's Growth at a Fair Price Strategy

Investors looking for long-term growth chances at fair prices often use established methods like the one created by Peter Lynch. The famous fund manager's plan centers on finding companies with lasting earnings growth, good financial condition, and fair prices, what current investors may see as a growth at a fair price method. Lynch stressed putting money into comprehensible companies with steady results instead of following speculative fads, supporting detailed fundamental study before making long-term investments.

YETI Holdings Inc (NYSE:YETI) designs, markets, and distributes high-end outdoor and recreation items, including coolers, drinkware, and outdoor equipment. The Austin company has created a dedicated customer following through tough, high-quality items that appeal to outdoor lovers.

Financial Condition and Earnings

YETI shows very good financial condition in several measures, matching well with Lynch's focus on company condition and earnings. The company's balance sheet displays little dependence on debt, with a debt-to-equity measure of only 0.09, much lower than Lynch's chosen limit of 0.25. This careful financial framework offers steadiness and lowers risk for long-term investors.

The company's earnings measures are especially notable:

• Return on equity of 22.07%, much higher than Lynch's 15% minimum
• Return on invested capital of 18.50%, showing good capital use
• Profit margin of 9.73% and operating margin of 13.13%, both placed in the high group of the leisure items field

These good earnings numbers indicate YETI has competitive benefits and price strength in its market, features Lynch considered important when finding good businesses.

Lasting Growth Pattern

Lynch specifically looked for companies with lasting earnings growth between 15% and 30%, staying away from both flat businesses and those growing at unsustainably high speeds. YETI's past performance fits well within this target area, with earnings per share growing at an average yearly speed of 18.24% over the last five years. While future growth estimates show some slowing to about 5.51%, this still represents good growth that matches Lynch's liking for lasting rather than extreme growth.

The company's sales growth story is equally strong, having grown at an average yearly speed of 14.90% over recent years. This steady top-line growth, together with widening margins, shows the company's ability to grow profitably, another important point in the Lynch method.

Good Price

Perhaps most important for value-focused investors, YETI seems fairly priced compared to its growth outlook. The company trades at a P/E measure of 11.98, much lower than the S&P 500 average of 27.02 and the leisure items field average of 34.06. More significantly, YETI's PEG measure of 0.66 falls much below Lynch's limit of 1.0, showing the market may be pricing the company's growth potential too low.

Additional price support comes from:

• Forward P/E measure of 11.39 compared to field average of 56.16
• Good free cash flow production supporting the current price
• Enterprise value to EBITDA measure that compares well with field peers

Fundamental Review

According to Chartmill's complete fundamental analysis, YETI gets an overall score of 7 out of 10, with full scores in earnings and good marks for financial condition. The review states that YETI "could be worth looking into more for value investing" given its mix of very good earnings, solid financial condition, and fair price. The company's good margins, efficient capital use, and clean balance sheet place it well for long-term success.

Investment Points

While YETI seems to meet many of Lynch's standards, investors should note some areas for watching. The company's growth speed is anticipated to slow from past levels, and it does not pay dividends, though this is common for growth-focused companies following the Lynch method. The current analyst coverage and institutional ownership levels would be worth looking into more, as Lynch liked companies that had not yet drawn major Wall Street notice.

For investors wanting to find more companies that fit the Peter Lynch method, more screening results can be found through our Peter Lynch Strategy Screener. This tool lets you filter for companies meeting similar standards around earnings growth, price, earnings, and financial condition.

Disclaimer: This article presents factual information about YETI Holdings Inc and its alignment with specific investment criteria but does not constitute investment advice. Investors should conduct their own research and consider their individual financial circumstances before making investment decisions.