One of the surprising hits of 2019 has to be outdoor sporting-equipment manufacturer Yeti (NYSE:YETI). Famous for its coolers that can withstand the rough-and-tumble lifestyle of the true outdoorsman, YETI stock soared shortly after its initial public offering in late 2018. Ahead of a critical fourth quarter of 2019 earnings report – scheduled for release on Feb. 13 – can the company sustain its incredible momentum?
On one hand, you wouldn’t intuitively expect YETI stock to do so well. We live in the era of Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and Netflix (NASDAQ:NFLX). Though people still go out and do stuff, we have so many entertainment options at home that many of us don’t bother leaving.
Yet outdoor pursuits have never gone out of style, despite impressions that it has. For instance, data from the U.S. Fish and Wildlife Service indicates that the number of paid fishing license holders has remained largely stable for the last 20 years.
In 2000, 29.6 million Americans paid for their fishing licenses. By the end of 2019, this figure crept up slightly to 29.65 million people. Granted, this is not huge growth by any means. Moreover, we did see some deceleration throughout the 2000s, presumably because of pre-2008 economic growth providing other entertainment options.
But the good news for YETI stock is that since 2014, more Americans have taken an interest in fishing. And if these folks are willing to brave the sometimes rough conditions for this outdoor sport, it’s fair to assume that they’ll enjoy similar rugged adventures.
Further, because these people actually use their equipment, their endorsement of the Yeti brand means something. But is it enough to convince investors on YETI stock?
A Fork in the Road for YETI Stock
Generally, optimism is strong for the sporting-equipment manufacturer. However, I think YETI stock is at a crossroads ahead of its Q4 report. Keep in mind that its 2019 surge wasn’t consistent. In the first half of last year, shares nearly doubled in value. In the second half, Yeti only gained about 17%.
To convince prospective buyers to take a shot, management has to convince them that its present valuation is justified. Obviously, a strong beat would help the discussion move in the right direction.
Consensus estimate for earnings per share stands at 43 cents per share. Not surprisingly, this is near the upper range of individual forecasts, from 41 cents to 44 cents. In the year-ago quarter, Yeti delivered EPS of 38 cents against a consensus target of 35 cents.
On the revenue front, covering analysts expect $279.5 million. Individual estimates range between $276.3 million to $283.5 million. In Q4 2018, the company rang up top-line sales of $241.2 million.
Given the recent uptick in growth trends, I don’t think it’s unreasonable to assume that Yeti will provide another beat. Since becoming a publicly traded company, it has always beat per-share profitability expectations.
But as I mentioned earlier, the bigger question is the sustainability of momentum in YETI stock. For that, I’m curious about the underlying company’s days inventory. Yeti should have a viable addressable market. So, it’s concerning that inventory has generally piled up over the last several quarters.
A competitor in the space, Newell Brands (NASDAQ:NWL), owns popular sporting brands such as Contigo and Coleman. Though its not a 100% fair comparison, Newell’s days inventory sits far lower than Yeti’s. Investors will want to see this metric move lower to have confidence in YETI stock.
Too Much Pressure
From a product point-of-view, I like Yeti’s rugged sporting products. Many outdoor activities, such as hiking, biking, running, and fishing, have captured more participants in the U.S. That’s a score for the company but not necessarily for YETI stock.
It might sound like a contradiction, but I understand what Wall Street is thinking here. Though the outdoorsman market is robust, there’s not much room for differentiation. In other words, a competitor could come in and make strong, high-quality coolers: it’s not rocket science.
Plus, investors don’t like the outdoors market and the sporting industry overall. With many past bankruptcies in this arena, it just doesn’t have credibility. And that’s why, according to StockRover.com, YETI stock has a 58.4% short percentage of float.
My take? Keep your emotions out of this name ahead of Q4. While Yeti has great products, it doesn’t necessarily mean it’s a good investment right now.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.