Yeti (NYSE: YETI) and its up-and-coming lifestyle brand have had a wild existence on the publicly traded markets.
Going public at $18 per share, Yeti skyrocketed to over $100 within three years. Since then, however, the stock has tumbled roughly 68% as a significant product recall, a slowdown in sales growth, more cautious consumers, and potential tariffs on Chinese goods weighed on Yeti's operations.
Despite this, the company has grown its sales, operating income, and free cash flow by 152%, 189%, and 287%, respectively, since its initial public offering. Thanks to the divergence between this steady growth and Yeti's declining share price, the company's valuations are near all-time lows.
With the stock now trading at this reasonable valuation, here are four main reasons why Yeti could be a once-in-a-decade opportunity today.
1. Yeti's loyal customers
Yeti is an excellent example of a lifestyle brand. Tailor-made for outdoor enthusiasts, Yeti's growing array of premium products (primarily drinkware and coolers today) is known for its high quality and durability.
However, whereas most brands today focus on bombarding customers with ads, Yeti creates authentic content, where its 200-plus brand ambassadors frequently use the products in their videos or at events.
Whether surfers, fishermen, hunters, bull riders, outdoorsmen, mountain climbers, or barbecue pit masters, Yeti's ambassadors connect with almost any kind of outdoor enthusiast. Powered by this connection to its aspirational customers, Yeti has a nearly cultlike following among its community.
The company's 2024 owner's guide study showed that 95% of customers would recommend Yeti products to their friends -- its seventh consecutive year of meeting this mark. This figure indicates that the brand continues to resonate with its loyal fans and will continue to benefit from free word-of-mouth marketing as it expands into adjacent markets.
Image source: Getty Images.
2. Expansion opportunities abound
While Yeti's 9% sales growth in 2024 is far from the 40% it delivered in 2021, the company's growth potential remains abundant. First, it continues to grow rapidly internationally, seeing a 30% increase in revenue from foreign countries in 2024. Plus, Yeti has only expanded to Canada, Australia, New Zealand, Japan, and seven countries in Europe, leaving a lot of future growth ahead.
To emphasize this point further, the company's international sales still only account for 18% of total revenue, whereas many of its peers are closer to the 50% level.
Additionally, Yeti continues to tiptoe into new, yet adjacent markets with its popular brand. Whether sponsoring teams like Austin FC (soccer) and Oracle Red Bull Racing (Formula 1), collaborating with creators like Good Good (golf), or expanding into new areas like cookware with its Butter Pat acquisition, Yeti keeps growing its reach.
In much the same way that the Nike brand eventually transcended running shoes, the Yeti brand appears ready to grow beyond its coolers and drinkware roots.
3. Yeti's cash hoard, strong free cash flow, and colossal stock buyback plan
Though Yeti's brand power has always made it an intriguing investment option, the company is currently noteworthy thanks to its robust financial profile. Yeti boasts a net cash balance of roughly $300 million, has generated over $200 million in free cash flow (FCF) in each of the last two years, and projects it will do the same in 2025.
Compared to the company's enterprise value of just $2.6 billion, this cash hoard and Yeti's ongoing FCF creation could prove to be a valuable combination for shareholders. This notion is especially true as management continues to lean into heavy stock buybacks.Since 2021, Yeti has lowered its outstanding shares by 2% annually.
However, this only appears to be the beginning for management, as they added another share repurchase authorization, boosting its total buyback capacity to $450 million. This total amounts to a whopping 18% of Yeti's total valuation, making these buybacks a great way to potentially reward shareholders.
Best of all, these repurchases could prove to be especially powerful, as Yeti's valuation currently sits near its all-time lows, giving management added value for their buyback dollars.
4. A valuation at all-time lows
Almost regardless of which valuation ratio you prefer, Yeti is at or near all-time lows right now.
Not only does Yeti trade at a deep discount to its historical averages, but it trades much more cheaply than the broader market. For example, the S&P 500's average price-to-earnings (P/E) ratio and forward P/E ratio are 29 and 21, respectively, whereas Yeti's are 17 and 12.
While the company may face cyclicality due to the consumer-facing nature of its business, its loyal customer base should shine through when we zoom out over the longer haul.
Armed with its hefty buyback authorization and with its shares trading near an all-time low valuation, Yeti could prove to be a brilliant stock to buy as it continues to expand both geographically and product-wise.
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Josh Kohn-Lindquist has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
