The search for quality companies trading at sensible prices is a foundation of many long-term investment methods. One of the most well-regarded methods is the strategy made famous by Peter Lynch, the notable manager of the Fidelity Magellan Fund. Lynch supported investing in what you understand and concentrating on companies with durable, maintainable growth, sound financial condition, and good valuations. His approach is frequently called "Growth at a Reasonable Price" (GARP), which aims to bypass the extremes of paying too much for extreme growth while still gaining from steadily growing businesses. A filter built on Lynch's main standards can assist in finding these possible choices.
One company that recently appeared from such a filter is YETI HOLDINGS INC (NYSE:YETI). The Austin-based designer and seller of high-end outdoor and recreation products, from tough coolers to insulated drinkware, has created a strong brand linked with sturdiness. For investors using a Lynch-like GARP structure, YETI offers an interesting case study in how a familiar consumer brand can match systematic fundamental filters.
Matching the Lynch Standards
Peter Lynch highlighted a group of numerical tests to find companies with the correct financial shape for long-term ownership. YETI's present measurements show a solid match with these ideas:
- Maintainable Earnings Growth: Lynch preferred companies increasing earnings per share (EPS) between 15% and 30% each year over five years, calling this range maintainable. YETI's five-year EPS growth rate of 18.24% rests well inside this goal area, showing a record of strong but not excessive growth.
- Sensible Valuation via PEG: A main Lynch belief is that the price should match the growth. The PEG ratio, which splits the Price-to-Earnings (P/E) ratio by the growth rate, helps evaluate this. Lynch searched for a PEG of 1 or less. YETI's PEG ratio, calculated from its past five-year growth, is 0.97, indicating the market is pricing the stock in line with, or even a little under, its historical growth path.
- Sound Profitability (ROE): Return on Equity (ROE) calculates how well a company creates profits from shareholder equity. Lynch wanted an ROE above 15%. YETI's ROE of 22.82% is very good, showing efficient management and a strong business model that produces notable profit from its capital foundation.
- Cautious Financial Condition: Lynch was cautious of high debt. His strategy usually needed a Debt-to-Equity ratio below 0.6, with a liking for even smaller amounts. YETI's ratio of 0.10 is very cautious, showing the company is financed almost completely by equity and kept earnings, which lowers financial risk greatly.
- Firm Short-Term Liquidity: The Current Ratio, which calculates a company's ability to meet short-term debts, is another condition metric. Lynch looked for a ratio of at least 1. YETI's Current Ratio of 2.16 shows more than double the current assets required to cover current debts, reflecting a very solid and liquid balance sheet.
Fundamental Condition and Valuation Summary
A wider view of YETI's fundamental analysis report supports the image shown by the Lynch filter. The company receives a firm total score of 6 out of 10, with specific high points in Profitability (9/10) and Financial Condition (8/10).
The profitability review notes sector-leading margins and returns. YETI's profit margin of 8.75% and operating margin of 12.23% place in the best group of its leisure products industry. Its Return on Invested Capital (ROIC) of 17.99% is another high point, doing better than 100% of industry rivals and verifying that growth has been reached efficiently.
On the condition side, the company shows a solid balance sheet. The very small debt amount is confirmed, and the Altman-Z score of 7.03 points to a very small near-term chance of financial trouble. While the valuation score is a middle 5/10, the review states that YETI trades at a P/E ratio lower than 87% of its industry peers and under the wider S&P 500 average, giving background for its good PEG ratio.
You can examine the full, itemized fundamental analysis for YETI Holdings Inc here: YETI Fundamental Report.
Growth Path and Points to Think About
The Lynch strategy is naturally focused on the future, and here investors must balance both past achievement and future outlook. YETI's notable historical growth in revenue and EPS is a solid base. However, analyst forecasts point to a slowing in the growth rate going forward, with EPS and revenue expected to grow in the mid-single digits yearly. For a GARP investor, this is a key area of study. The issue becomes if the present valuation, which seems sensible based on past results, properly allows for this possibly slower growth period, or if the company can beat these lowered expectations.
Is YETI a Lynch-Like "Story Stock"?
Beyond the figures, Peter Lynch advised investors to learn the business narrative. YETI fits the "invest in what you know" idea, having grown from a specialty fishing cooler brand to a common lifestyle name. Its products get high prices and strong customer loyalty. The test, common for a developing growth company, is to discover new paths for growth while guarding its brand value and margins. The company's solid direct-to-consumer sales path and moves into new product groups like clothing are part of this continuing story.
Finding Other Possible Investments
YETI acts as an example of how using systematic, proven filters can reveal familiar companies for more study. For investors curious in finding other companies that meet similar GARP-focused checks, the Peter Lynch strategy filter is a helpful beginning point.
You can see all present results from this Peter Lynch-based filter here: Peter Lynch Strategy Stock Screen.
Disclaimer: This article is for information only and does not form financial guidance, a suggestion, or an offer or request to buy or sell any securities. The review shown is based on information and a specific investment strategy filter; it is not a replacement for your own study and careful examination. Investing includes risk, including the possible loss of initial investment. Past results of a security or strategy do not ensure future outcomes.
