Like many consumer goods stocks in 2022, Yeti Holdings (YETI 2.74%) has fallen significantly since the beginning of the year as it faces supply chain and inflationary headwinds. Yet the demand for the outdoor product manufacturer's goods remains high, and its business fundamentals are impressive. Here's why its stock might be ready to heat up again.

What happened to Yeti stock?

Despite record revenue and net income in fiscal 2021, Yeti stock is down 40% so far this year. One reason is concerns around the company's supply chain constraints, especially with its hard cooler products. On the latest earnings call, CEO Matt Reintjes said, "Demand for the brand and product outstripped our supply to support it."

A Yeti tumbler on a table.

Image source: Getty Images.

One metric highlighting how supply chain issues affect Yeti is gross margin. This metric declined from 59.8% in the fiscal 2020 fourth quarter to 57.5% a year later as the company paid inflated inbound freight costs. Worse yet, for the current year, management expects those costs to climb 280 basis points, while raw materials like stainless steel and resin will also rise 130 basis points. Together, the higher costs will lower gross margin even further to 55%.

Yeti is also transitioning away from relying on wholesalers to sell more of its products directly to consumers through Yeti.com, Amazon Marketplace, the company's retail stores, and corporate sales. As a result, the company's independent wholesale accounts declined from 4,500 in fiscal 2020 to 3,000 in 2021. While direct-to-consumer sales are inherently more profitable for Yeti, wholesalers made up about 44% of the company's net sales for 2021. Management expects long-term sales growth in its wholesale segment to be in the "low double digits," which would mark a decline from its 23% growth last year.

Yeti products are more popular than ever

Despite Yeti's struggles with its supply chain, its products are in high demand, especially in its drinkware category, which includes its popular Yeti Rambler. Specifically, sales in the drinkware segment rose 32% to $832.4 million in fiscal 2021. The company is also aggressively expanding internationally in Canada, Australia, Europe, and the U.K., resulting in international sales growing 102% last year. International business now accounts for 9.5% of the top line, up from 6.1% in 2020.

For 2022, management is guiding for revenue growth of 18% to 20%. While drinkware has been Yeti's best-performing segment -- making up about 60% of net sales in 2021 -- the company expects its cooler and equipment segment to grow faster this year thanks to new product releases. With a product line that's becoming more diversified -- the company introduced backpacks and duffel bags in early 2021 -- Yeti hopes its brand will continue to scale beyond drinkware and become less reliant on one segment of the business.

Yeti stock is historically cheap

Yeti stock looks underpriced compared to its historical price-to-earnings (P/E) ratio. Yeti traded at a P/E ratio of about 22 as of this writing, an all-time low for the company since it went public in late 2018. 

Chart showing Yeti's price and PE ratio spiking and then falling since 2020.

Data by YCharts.

Additionally, Yeti has an outstanding balance sheet with about $192 million in net cash, and the company recently announced a $100 million share repurchase program. While the program represents only about 2% of Yeti's market cap, it would reverse the company's five-year trend of adding to its outstanding share count. As a result, Yeti may grow its adjusted earnings per share more than the 10% to 11% called for in management's fiscal 2022 guidance.

Is Yeti stock a buy today? 

Yeti management expects inflation and supply chain pressures to worsen before they get better in 2022. Still, Yeti is a fast-growing company, and its stock is near its 52-week low with its lowest P/E ratio since becoming a publicly-traded entity. While management expects adjusted earnings to be down in the fiscal first quarter, look to the earnings call on May 11 to see how the rest of 2022 may play out. If management maintains its strong revenue and earnings guidance for the full year, then Yeti should reward patient investors.