Topic: Growth Stocks

Camping World Holdings rolls to higher sales, but faces major risks

Camping World Holdings

Recently a Member of Pat McKeough’s Inner Circle inquired about a specialized vehicle firm that is the leader in its category.  

Camping World Holdings operates more than 150 recreational vehicle (RV) dealerships as well as providing a variety of services for the people who drive them. In 2018 it also took over a bankrupt chain of hunting, fishing and camping stores, re-branded and re-opened them. The company’s sales and revenue are up, but its earnings fell almost 20% in the latest quarter. Its shares have also fallen, and that likely reflects investors’ concern about the company’s risk factors, says Pat. While overall trends are favourable in the RV industry, he adds, high debt, rising interest rates and steel and aluminum tariffs are all worries for this stock.

Q: Dear Pat: I would appreciate your opinion on Camping World Holdings, as it trades at a very low P/E. Many thanks.


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A: CAMPING WORLD HOLDINGS (symbol CWH on New York; www.campingworld.com) offers a variety of services to recreational vehicle (RV) owners and enthusiasts through its two brands: Camping World and Good Sam.

Camping World operates more than 150 RV dealerships (selling new and used towable and motorhomes) and service locations in 36 states. Good Sam provides insurance programs, financing, and emergency roadside services.

The company first sold shares to the public and began trading on the New York exchange in October 2016 at $22.

In May 2017, Camping World was the successful bidder for certain assets of bankrupt Gander Mountain, a big chain of outdoor specialty stores in the U.S. Since the acquisition, Camping World has negotiated leases for a number of the old Gander Mountain retail locations in key RV markets where it feels it is now underrepresented.

Since the beginning of 2018, Camping World has also opened 60 Gander Mountain stores rebranded as Gander Outdoors. With those hunting, fishing and camping stores up and running, the company now aims to launch up to 40 Gander RV Sales locations by the spring of 2019. With this initiative, Camping World hopes to capture a larger RV customer base.

In the three months ended September 30, 2018, overall revenue rose 6.2%, to $1.31 billion from $1.24 billion a year earlier. However, excluding one-time items, earnings fell 19.4%, to $18.2 million from $22.5 million. Per-share earnings fell 35.5%, to $0.49 from $0.76, on more shares outstanding. Higher costs, including interest expenses, hurt profits.

The company’s long-term debt of $1.1 billion is a high 1.1 times its depressed market cap. It does, however, hold cash of $125.4 million, or $1.43 a share.

Growth stocks: Company’s shares trading at just 3.5 times forecast earnings for 2019

Despite its rising sales Camping World’s shares are down 75% since the start of this year, and were down considerably even before the recent market volatility. That likely reflects investor concerns about its risk factors. They include its high debt in a time of rising interest rates as well as steel and aluminum tariffs pushing up its costs. Rising gas prices and consumer interest rates could also slow growth. At the same time, the company’s investment in Gander Outdoors stores, which operate in an intensely competitive retail market, also adds risk.

However, ongoing trends in the RV industry are favourable. The company will likely continue to see a strong influx of first-time RV buyers for a while, mostly because the U.S. economy is improving and the recent tax cuts in that country have benefited consumers. Plus, new buyers are more attractive customers for Camping World because it has an opportunity to also sell them ancillary services such as roadside assistance and various protection plans.

Moreover, many millennials view leisure and outdoor activities as a productive way to spend time with family and friends. To do that, they aren’t waiting until retirement to hit the road. Instead, they are starting with some less expensive units that they can just hook up with a trailer hitch onto their existing vehicles.

At the same time, even if new RV sales slow, Camping World will continue to insure, finance, service and resell its greatly expanded fleet through a growing network that has no significant rivals.

The stock trades at just 3.5 times the forecast 2019 earnings of $3.25 a share. That estimate could prove optimistic if consumer spending slows. The stock yields 2.7%.

Inner Circle recommendation: Camping World Holdings is okay to hold, but only for aggressive investors.

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