Yeti Holdings (YETI -2.71%) turned in another impressive quarter recently. Year-over-year sales growth accelerated to 45%, up from 42% in the first quarter, with rising demand for the company's outdoor gear, including coolers, bags, and other accessories.

Some investors might be hesitant to jump on the Yeti bandwagon since the company wasn't growing anywhere near this pace before the pandemic, and shares have gained nearly 500% since March 2020. While the easing of pandemic restrictions no doubt contributed to the company's accelerating results, there are three signs Yeti is cornering a lucrative niche in the marketplace.

An adult carrying a cooler while leading children to the beach.

Image source: Getty Images.

1. Quality products

It might go without saying, but companies that focus on product quality are more likely to gain a loyal customer following. During the second-quarter earnings call, management noted encouraging data it's seeing in increasing revenue per customer.

"In addition, the quality of our new and returning customers is strong both in terms of retention rates and in the average value of each customer," CEO Matthew Reintjes said. "This is yielding both higher sequential and year-over-year customer lifetime value."

Yeti certainly goes the extra mile in designing otherwise mundane products like drinkware. Its products are made with robust materials and are specially designed to maintain drink temperature for hours. Drinkware was Yeti's fastest-growing segment last quarter with sales up 69% year over year. 

2. Social media experts

Yeti has in-demand products, but it also has a unique approach to marketing across different channels that help build brand awareness. It is doing a great job of connecting with consumers directly in social media. For example, during National Barbecue Month in May, Yeti's ambassadors shared cooking tips and recipes on social media, which kept the brand in front of millions of people during a peak time of the year when people are likely in the market for Yeti's products.

The company has 1.7 million followers on Instagram. That is well ahead of other outdoor-minded brands such as Canada Goose and Columbia Sportswear.

"We believe the uniqueness of this approach spanning broad reach efforts and very directed and specific consumer engagement is part of the continued advantage of Yeti's brand effectiveness," Reintjes said during Yeti's second-quarter earnings call

3. Customers are paying up for the Yeti brand 

Direct-to-consumer sales grew 48% in the most recent quarter, but the most telling sign of Yeti's brand competitiveness is the strong demand in the wholesale channel. This shows that even when consumers can choose among many different brands on store shelves, they are still choosing to buy Yeti.

Yeti's Tundra 45 cooler has a perfect five-star review rating on Amazon, even with its price tag of $299, which is higher than other competing brands.

"We saw significant growth during the quarter in wholesale where we continue our efforts to replenish inventory to support the ongoing strong demand in the channel," Reintjes said. 

This all translated to improving gross margin, which is always a key indicator of demand for consumer discretionary companies. Yeti reported an improvement in gross margin of 280 basis points points in the second quarter. The strong top-line growth and margin performance fueled 66% growth in earnings per share. 

At a forward price-to-earnings ratio of 39, Yeti doesn't look too expensive relative to its long-term growth potential. Even at these current highs, I still consider the stock a good long-term investment.