The COVID-19 pandemic shocked the global economy as brick-and-mortar businesses came to a halt. Strict lockdown policies have catalyzed the shift from traditional to online shopping. YETI Holdings, Inc. (YETI), a global designer, retailer, and distributor of innovative outdoor products, is among the companies benefiting from this significant change. Today’s FA Alpha will look into the true profitability and performance of the company under Uniform Accounting.
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During the pandemic, many people were stuck at home, dreaming about their next adventure.
And people were preparing for their next plans by surfing the internet and shopping online.
One of the brands that turned this situation into huge success is Yeti Holdings.
The company is a global designer, retailer, and distributor of innovative outdoor products.
Yeti’s product mix varies from coolers and drinkware to backpacks and bags, and is built to meet the unique and varying needs of diverse outdoor pursuits of adventurers.
Its highly respected brand reputation and quality products led profitability to surge in this online shopping boom.
However, as-reported metrics show that the company is not really profitable after all, and it could only make slightly above the corporate averages in the United States.
Based on as-reported numbers, the company’s return on assets (“ROA”) is 19% in 2020 and 18% in 2021.
These numbers are highly conservative considering how the company benefited from the online shopping surge.
On the other hand, Uniform metrics reflect the robust returns the company has been able to make.
The company recorded a Uniform ROA of 75% in 2020 and 50% in 2021.
Alongside its strong profitability, the company’s small footprint and a booming opportunity for further growth as it expands its offerings and brand recognition make Yeti an impressive name in the eyes of investors.
Yet, the market seems spooked by the name and it trades at a dirt cheap P/E of just 13.7x.
That is why Yeti is not just the favorite brand for outdoor activities, it is poised to become investors’ favorite as well.
Hence, its high growth potential, strong returns, and low valuations make YETI a compelling name for the FA Alpha 50.
Throughout financial market history, many of the world’s most successful investors have been candid in their belief that Generally Accepted Accounting Principles (“GAAP”) distort economic reality.
Warren Buffett, for example, once said investors should “concentrate on the world of companies, not arcane accounting mathematics.”
Investors who neglect the very real issues with as-reported accounting can find themselves caught up investing with the crowd, blindly following hot “themes” without a thorough grasp of how to understand the businesses in question.
The only true way to focus on the “world of companies,” as Buffett suggests investors do, is to present a clear picture of how a business operates, something that can only be done by adjusting financial statements to reflect the arbitrary nature of certain accounting rules that leave much to discretion.
The world’s best investors understand the need to make these adjustments, which allows them to focus not on picking out the most popular companies, but rather on looking for great names in sleepy areas that the market isn’t paying much attention to. From there, the goal is to then identify quality companies with significant growth potential at reasonable prices.
That’s exactly what we’ve set out to do with the FA Alpha, our monthly list of 50 companies that rank at the top for quality, high growth, and low valuations.
This list has outperformed the market by 300 basis points per year for over 20 years now, effectively doubling the performance of the market by focusing on the real fundamentals and valuations of companies with our proprietary Uniform Accounting framework.
See for yourself below.
To see the other 49 names on the list, click here.
Joel Litman & Rob Spivey
Chief Investment Strategist &
Director of Research
at Valens Research
Today’s highlight, YETI Holdings, Inc. (YETI) is one of the top stock picks from FA Alpha 50 this month. To see more stock picks like this, become an FA Alpha and get access to FA Alpha 50.