Plenty of stocks have been bludgeoned over the past 18 months as the tailwinds of the pandemic disappeared. While those stocks are all cheaper than they were in 2021, not all of them are good buys.
Two stocks that stand out as legitimately interesting investment opportunities are Yeti (YETI -0.08%) and Etsy (ETSY -2.10%). Here's why long-term investors should consider buying these stocks.
Yeti
Yeti is a company I wrote off before I owned a Yeti product. The company makes expensive, high-quality outdoor products like coolers, drinkware, and bags. Prices are high -- a basic Yeti tote bag costs $130, for example. Most people aren't going to consider such an expensive product, but those who do take the plunge end up as loyal customers, thanks to Yeti's relentless focus on quality.
Even with that customer loyalty, the company isn't immune to economic downturns. Revenue is barely growing at the moment, and profits have tumbled on rising costs. The stock has crashed roughly 65% from its all-time high reached in late 2021. Revenue rose just 3% year over year in the first quarter, and net income plunged 59%.
Yeti is aiming to return to double-digit growth by the fourth quarter of 2023. Part of the company's growth challenges are related to a voluntary recall of nearly 2 million soft cooler products.
While first-quarter results weren't impacted, redesigned versions of the products won't be back on the market until the fourth quarter. For the full year, Yeti expects revenue to grow by 3% to 5%.
With the stock down so much, Yeti now appears reasonably priced. The company expects to produce adjusted earnings per share between $2.12 and $2.23 this year, putting the price-to-earnings ratio based on the midpoint of that range at about 17. Earnings growth should pick back up in the fourth quarter as the full lineup of soft coolers returns.
Yeti stock isn't a no-brainer. The recall could tarnish the brand, and the state of the economy and the pressure consumers are feeling from elevated inflation and interest rates could throw a wrench in the company's plan to return to robust growth and stronger profitability. The stock isn't expensive, but it also isn't cheap.
Still, if Yeti can reaccelerate growth later this year, the stock could be in for a big recovery.
Etsy
Online marketplace Etsy has carved out a unique place for itself in the world of e-commerce. When someone wants to buy something unique or handcrafted, Etsy is the obvious choice.
The pandemic drove millions of customers to Etsy's various platforms, and now the company is working to retain those customers. While gross merchandise sales through its platforms slumped 5% year over year in the first quarter as customers pulled back, Etsy managed to grow revenue by 11%, thanks to higher fees. The challenge going forward is to prevent pandemic-era gains from vanishing.
The company's plan to return to growth is to improve the experience for both buyers and sellers. Making it easier to find items through search improvements and the use of AI, making sure buyers know they can count on Etsy to make things right if something goes awry, and bringing shipping times and costs down are all part of Etsy's long-term strategy.
Despite lower sales volumes and rising costs, Etsy continues to churn out impressive free cash flow. The company's trailing-12-month (TTM) free cash flow was $650 million at the end of the first quarter, and the company remains profitable on a GAAP basis, as well. Etsy generated net income of $74.5 million on $641 million of revenue in the first quarter.
Etsy's post-pandemic growth struggles have led the market to cool on the stock. Shares of Etsy are down about 70% from their late-2021 peak, bringing the market cap below $11 billion. The stock trades for about 17 times TTM free cash flow.
Growing free cash flow will be difficult in the short term as Etsy lays the groundwork to improve the buying and selling experience. There's plenty of room to grow in the long run: Gross merchandise sales totaled just $3.1 billion in the first quarter, a minuscule fraction of global e-commerce spending.
Etsy has already cemented its status as the go-to destination for unique products. The company will need to build on that success, making its platforms easier to use and more trustworthy, to unlock the next phase of its growth. With the stock plunging from its all-time high, investors can bet on Etsy without paying an arm and a leg.
