Stock Forecast: Is Camping World (CWH) Headed to All-Time Highs?
The bull and bear cases for a COVID-19 success story.
Americans desperate for a breath of fresh air and a glimpse of freedom in the wide-open spaces after months of COVID-19 travel restrictions, lockdowns, and closure of many normal sources of recreation (cruises, restaurants, theme parks, casinos) gave the recreational vehicle (RV) industry a record-breaking sales season last summer, and Camping World Holdings, Inc. (NYSE: CWH) was there to benefit.
The company’s share price rose almost 311% over the past 12 months, and more than 45% so far in 2021. In today’s trading, it’s up added another 10%-plus and industry experts say another robust summer of RV sales lies ahead.
However, Camping World’s success rests in part on COVID-19, and the stock has been famously volatile historically. So, can Camping World Holdings maintain its momentum, or is a downward correction coming?
Why The Future Could Be Bullish for Camping World (CWH) Stock
A combination of ongoing trends and fruitful strategic moves could add up to continued growth for Camping World Holdings into 2021 and possibly beyond.
Looking first at Camping World’s market, RV Industry Association or RVIA reports reveal exceptional sector sales growth advancing in 2021. Usually, RV sales concentrate in spring and summer, with a major decline in autumn and winter. However, this year, January sales set an all-time record since the industry started collecting data. 45,930 RVs sold in January 2021, a 39.2% year over year leap.
Turning to the bigger picture, the RVIA’s most recent “Quarterly Forecast” points to 2021 as an even more successful year for RV sales than record-setting 2020. The report indicates manufacturing capacity bottlenecks have been accounted for, the sector is fully adjusted to the increased demand, and the most likely scenario will see a 23.9% jump in sales from 2020 to 2021 with 533,356 units sold, though this could range 10,000 units higher or lower.
Camping World Holdings, which has already moved to profit from this powerful trend by branching into RV parts, creating a used RV marketplace enabling owners to buy and sell to one another, and similar initiatives, continues to push expansion to increase its market share and build on its existing success.
The company’s acquisitions of RV dealerships to build out a chain of “supercenters” in all 48 contiguous U.S. states continues, with approximately 170 supercenters operational and clustered in areas of the country where RV ownership and/or use is high.
On March 8, Camping World announced it is buying undeveloped land in Delaware, Montana, and Nebraska to build supercenters there from the ground up after failing to find suitable existing dealerships, and extending its presence into three more states in the process.
Financially and structurally, Camping World has also improved its position considerably, with the past year’s cash windfall enabling acceleration of these improvements. Its recent Q4 results show 17.5% revenue growth year over year, while it continues to sharply rein in expense increases and growing gross margins.
Its guidance calls for 17% growth in 2021 EBITDA compared to 2020, while it delivered earnings per share (EPS) for Q4, with its $0.48 EPS delivering a 380% positive surprise over Wall Street consensus estimates.
The company also announced $100 million in share buybacks in mid-2020. It followed up with concrete action in November, when it bought back the first $21 million worth of shares at $26 each (on average), improving stock value for investors by reducing dilution.
Camping World is showing signs of being a vigorous, well-funded, well-directed company capable of making the most of its opportunities as RV ownership reaches new levels of popularity.
RV Industry Stumbling Blocks That Could Derail Camping World
While Camping World Holdings has successfully addressed COVID-19 driven RV demand, its future depends partly on the expanded RV market being the “new normal.” While it’s possible the greatly strengthened American interest in RVing has established a new plateau, with the investment in an RV and the satisfaction gained from ownership and use permanently cementing higher consumer interest, engagement, and spending, this is something of an unknown.
Both the RVIA and Camping World’s CEO Marcus Lemonis believe the shift to stronger RV interest is permanent, but this remains a projection until it is actually seen if demand stays high once coronavirus vaccination opens up alternate recreation fully again.
Camping World also continues to be highly leveraged, with debt at 52% of assets and the company’s $73.4 million in net interest on that debt equaling approximately 20% of 2020’s net income. While it is deleveraging and has ample cash reserves, the high debt level represents a risk, especially if RV demand unexpectedly dips and cash flows shrink.
The RV company’s corporate structure also undermines some of the outward flashiness of its success. While the situation is complex and somewhat opaque, CWGS LLC actually owns the business, with 53% of income going to the LLC and 47% to Camping World Holdings.
Thus, only slightly less than half of the company’s profits actually go to the public stock which investors own and benefit from, meaning Camping World’s successes aren’t as large as they appear to be on the surface, when viewed from a shareholder perspective.
On top of these factors, while Camping World is moving toward stability, it has a well-established history of volatility. Over the past five years, using beta measurements, Camping World has been 3.45 times more volatile than the S&P 500 index.
For those with a bearish frame of mind, all of these factors together might suggest Camping World’s current valuation is actually fair, with little room for upward growth and possibly even indicators for a slight downward correction.
Camping World (CWH) Stock Forecast Conclusion
While uncertainties about COVID-19 and RV demand, structural oddities of Camping World’s business, and the company’s volatility sound a bearish note of caution, the RV seller’s positives currently appear to somewhat outweigh these potential negatives.
Camping World has the strategy, efficiency, resources, and market share to continue building on the surge in RV sales, which itself shows no sign of slowing down. While not without risks, and with the lurking potential to go lower if circumstances change, Camping World currently looks like a good investment through 2021 and likely into the longer term.
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