Shares of YETI Holdings (NYSE:YETI) surged as much as 14% at market open today. While still up by double digits near 11 a.m. on Monday, activity then cooled, and this recent IPO's stock was up 6.8% at 1 p.m. EST on Monday. Today's big surge was a product of a company release on Friday evening, announcing preliminary fourth quarter and fiscal year 2018 results.
YETI reported a 19% increase in net sales, including a strong 45% increase in its direct-to-consumer results. Product mix continues to shift away from coolers, with the coolers and equipment segment reporting 6% growth, versus strong 37% growth in drinkware, which now counts for more than half the company's total sales. But even within that "weak" 6% growth number for coolers, there's a ray of hope, reversing a recent trend of declining sales.
Even more positive was the fact that the company increased guidance for its operating results, as well as GAAP and adjusted net income, by double-digit rates for the full year, though management didn't offer any explanation.
The past couple of weeks have been very good for YETI shareholders. Since the stock market reached its recent bottom on Christmas Eve -- also the low point for the company's shares since its IPO -- the stock has gained 43%, and is now up 5% from the IPO price.
But there continue to be questions investors should consider about YETI and its long-term prospects. It is a very powerful brand that seems likely to prove durable over time, considering its high-quality products. But the real question continues to be just how big YETI's addressable market really will be. Low-cost competitors continue to enter the space, taking a bigger share of customers who may not require a $1,000 cooler that stays cold for a week.
The company does continue to take steps to grow and diversify its business, but trading for 26 times preliminary 2018 earnings per share, this isn't a cheap stock. That's before we consider the potential implications of an economic slowdown, which would hurt a consumer products company like Yeti in a pretty big way. Furthermore, Yeti has also taken on more debt recently to fund its growth, adding more balance-sheet expense and risk.
Add it all up, and investors should be wary before buying YETI just on this recent good news. Its prospects continue to look relatively good, but I'm just not convinced that the potential market for YETI's products is as big as management thinks it is.