Over the past six months, YETI’s stock price fell to $32.80. Shareholders have lost 11.7% of their capital, which is disappointing considering the S&P 500 has climbed by 5.2%. This may have investors wondering how to approach the situation.
Is now the time to buy YETI, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is YETI Not Exciting?
Even with the cheaper entry price, we're swiping left on YETI for now. Here are three reasons why there are better opportunities than YETI and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, YETI grew its sales at a 14.5% annual rate. Although this growth is acceptable on an absolute basis, it fell short of our standards for the consumer discretionary sector, which enjoys a number of secular tailwinds. 
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect YETI’s revenue to rise by 3.2%, a deceleration versus its 14.5% annualized growth for the past five years. This projection is underwhelming and indicates its products and services will face some demand challenges.
3. New Investments Fail to Bear Fruit as ROIC Declines
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, YETI’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
YETI’s business quality ultimately falls short of our standards. After the recent drawdown, the stock trades at 12.2× forward P/E (or $32.80 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're fairly confident there are better stocks to buy right now. We’d recommend looking at the Amazon and PayPal of Latin America.
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