Is Weber Stock a Good Buy for Long-Term Investors?

Outdoor grilling company Weber (WEBR) held its initial public offering in August. Shares are trading down about 20% since that time. In this segment of Backstage Pass, recorded on Nov. 1, Fool.com contributors Toby Bordelon, Danny Vena, and Jose Najarro discuss the major highlights that investors need to know when considering this company for their portfolio. 

Toby Bordelon: Let's look at our next company here. Where did I put that company? We are talking about a company that I think everyone here knows. You're going to recognize the name of this company. This is Weber Grill. What do they do?

They are an outdoor cooking company. They make grills, Weber makes grills. You've probably seen them, you probably know the brand. For a long time, they were known for those charcoal pits. My dad had one of those, they last a long time, good stuff if you like charcoal grilling. They've since moved into things like gas grills and pellet grills, new things for them. They've been around for 70 years.

This is a 70-year-old company. Very solid, they've just never been public. 24% global market share, very strong brand. They're selling in 78 countries. About 50% of their revenue is coming from outside the U.S., so it's not just like, "Yeah, we sell in 78 countries but we sell five grills in Canada." No, I mean, it's a legit global business here.

In 2020, they introduced a connected grilling platform, it's got an app that guides you through some stuff, you control the grill. Genesis is the grill. I think that's Genesis II even, maybe. I thought of buying one of those but my wife wouldn't let me. I have a Traeger (COOK 3.38%).

I wanted something because if you have a Traeger it's hard to heat up. They don't sear as well, so I was going to get something else and her position was, "You can have one expensive grill and one cheap grill, but not two expensive grills." So there we are. Christmas is coming soon though, so maybe we can change that heading into the new year.

They're doing a lot of work for their direct-to-consumer channel. They sell online. They have independently owned and operated stores that are branded Weber. Weber, they have restaurants too. Now, this is independently operated licenses, and I think they're mostly in the Chicago area. I remember the last I was in Chicago, I wanted to go there and I was not able to make it work. But they do their cooking on the pit grills, it seems cool. $875 million, eight market cap, so not a large company, pretty small. Check this out though, you look at the finances, they had good sales in the third quarter, which they just released.

93% of revenue is up and net income is declining pretty substantially. This kind of maybe goes back to we're talking about that, once you're public you start to see things start happening. They have a lot of debt, that's a concern I have. The debt is pretty large. $1.2 billion in debt compared to $134 million of cash on hand, you got to watch that. Operating cash flow is coming down, but they say that's being driven by inventory levels normalizing, like we talked about and supply chain issues that we've seen.

Maybe that's a good thing. They do expect their full-year sales to be up to almost $2 billion, which will be a 30% increase from last year. Demand is at record levels according to management. On the surface that looks pretty good. Last year was a pretty good year for grills. You think about the pandemic, you couldn't go out to eat, you couldn't go to restaurants. You might think well if I'm going to cook, I'm going to cook well. My dining out money is not going to buy me a new grill, because that's what I'm doing for the next few months.

People did that. The fact that we're still seeing that sales growth off of 2020, I think is pretty good. This is definitely something that's on my watch list, but I don't love the financials, I don't love the debt. I want to see some improvement here before I'm willing to say, when I go in and buy this company and make it a part my portfolio. But one I wanted to look at, because I just have a soft spot for Weber grills.

It's that good old American grilling brand that's been around forever. Anyone who cooks outdoor, I know you've heard of this. If you don't have Weber, I know you've heard of this company. One potentially to keep in mind, but watch the financials. Let's get another quarter or two before we say this is going to be where we want to go.

Danny Vena: That's exactly right. In fact, I certainly have a Weber out in my backyard. In fact, I have owned a Weber grill pretty much all of my adult life that I wasn't in the military. I have a grill, I like Weber grills, I like the options that they have. They have everything from an entry-level grill that cost next to nothing all the way up to several thousand dollar grills with all of the bells and whistles that you could possibly imagine on a grill. I had some of the same concerns that you did.

This is another one of those cases where a company that saw a huge boost of growth during the pandemic for exactly the reasons you stated, and I certainly want to watch for their growth to normalize and see what that's going to be post-pandemic.

Jose Najarro: Toby, quick question. I live here in the East Coast. During fall and winter, I hate it because I can't go outside and grill. I was wondering, I've never really looked at it. I have a Weber outside as well, and that's usually spring, some of my favorite times, super easy-to-use. Do they have anything for like indoor use? I know pre-pandemic, where I pretty sure a lot of my friends were living in places like apartments and stuff like that, someplace where they can't have a grill.

Do they have any products that deal with those type of consumers that might want to have the Weber Grill taste but indoors or not some place where they can have it outdoors?

Bordelon: They do. It's not going to give you the same thing, but they do have a series of electric grill. Basically they are electric grills, similar to I guess maybe the innovators in this category you would say would be the George Foreman Grill. But they do have a series of those so that you can plug in, some can be used outdoors, some can be used indoors.

I think I've seen one that almost looks like the kettle grill. It's made for outdoor use, but it's made for like a balcony where they say you can't have any grill, but if you're just plugging it in and basically having it still outside, it's fine. Those do exist. If you're looking for that grill, like the grill marks, the grill style, maybe it's something worth looking at to get one for your kitchen for indoor stuff.

You can Jose, and you can get this from Weber depending on model of the grill you have. They will sell you accessories like no one's business, because those are high-margin stuff. You can get insulating blankets to throw over your grill to help regulate that temperature. That doesn't help you when you have to go out in the snow. [laughs] But you can't get an insulating blanket to use for the grills so you're not using as much fuel if you just insist on having some smoke ribs in January.

Najarro: I don't know if I'll take a look at the stock, but maybe I'll definitely take a look at those products you guys just mentioned. [laughs]

Vena: Then after you do that, then maybe folks will have a bit of the shares enough because Jose went out and bought that grill. [laughs] It might have that effect.