Camping World Holdings (NYSE:CWH) had a banner year in 2020. Although the stock plummeted into penny stock territory at the onset of the initial March ’20 crash, it quickly recovered to reach former highs and produce a 10x return on investment (ROI) for buy-the-dip investors.
With the hospitality industry returning to a sense of normalcy and the company struggling to sustain its valuation, is Camping World stock a sell?
Camping World Tethered To $68 Billion Market
Camping World is a Lincolnshire, Illinois-based company that specializes in RVs and camping equipment and accessories. The company was founded in 1966 and went public through an October 2016 IPO that raised $251 million. It now has over 187 locations, down from a high of 228.
That’s just the RVs – the company has 5.45 million customers, including 2.18 million Good Sam Club members. This provides vertical integration featuring vehicles and the camping spots to park them. It’s also working on electric RVs after a failed partnership with Lordstown Motors (NASDAQ:RIDE).
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The company continues to expand through acquisitions and mergers, along with partnerships with brands like NASCAR. It also sponsors the Camping World Stadium in Orlando, Florida in addition and it doesn’t hurt that its CEO is a public figure with a massive social media following as well as his own show on CNBC.
Rising demand and a massive market size are tailwinds in the company’s favor. Recreational vehicle shipments are up over 32 percent year-over-year, according to the RV Industry Association. It’s a highly competitive market worth over $68 billion in the United States and has an economic impact of $114 billion.
Who Is Marcus Lemonis: Camping World CEO?
Camping World CEO Marcus Lemonis is the star of The Profit, a TV show in which he scouts out struggling small businesses in which to invest. He hasn’t been immune to scandal, which could be a cause for concern among investors who focus as much on management quality as business quality. For example, over 50 small businesses filed a lawsuit against the show accusing him of stealing their IP.
His business acumen has translated into serious wealth for himself and his stakeholders, however. As the head of Camping World, Good Sam, and several other businesses, Lemonis is worth an estimated $500 million.
With over 500k followers on Twitter and 1.3 million followers on Instagram, Lemonis is a high-profile social media influencer. He contends that he leverages his social media reach for the good of the businesses he partners with and invests in.
Lemonis is regularly involved in politics, activism, and social issues. He became CEO of Camping World after its 2006 merger with FreedomRoads, the company he co-founded three years earlier. He then led the merger with Good Sam Enterprises in 2011, which made him one of the most powerful men in the $374 billion outdoor recreation industry.
Camping World Is A Conglomerate
Camping World is an enterprise that consists of nearly 50 businesses, which are largely related to RVs. This includes a variety of local RV dealerships and Good Sam locations. In addition, the company owns several outdoor retailers, including Gander Mountain and The House Active Sports.
Because of the pandemic’s impact on travel and hospitality, this sector continues to grow. More people considered options like self-contained RVs, camping outdoors, and boating for their vacation plans.
The same is true for RV manufacturers, like Winnebago Industries (NYSE:WGO), which is one of the brands sold at Camping World.
This sparked a massive upward trend in the stock that has some investors wondering if there’s any room for the stock to continue rising.
Will Camping World Stock Go Up?
Camping World raised its full-year EBITDA guidance in the third quarter to a high end of $930 million. This was after reporting a record $1.91 billion revenue for the quarter, a year-over-year increase of 14.2 percent.
This gave the company $189.3 million in net income, an increase of 22.3 percent from the prior year’s quarter. It also has a 9.9 percent margin, which is higher than the prior year and shows that the company is improving its operating efficiency.
It’s also rolling out new initiatives, like a peer-to-peer RV rental platform and Electric World, its electric vehicle concept. This initiative could make the stock an EV darling that attracts wider investor attention and raises its price target.
The company also announced a $2.00 annual dividend yield, which translates to a 4.81% dividend yield currently. When a dividend rises near the 5% level it’s time to start wondering if something but might be amiss with the company: has growth stalled and has the company turned into an income play? In other words, is Camping World stock a sell?
CWH Debt Burden Is A Heavy Anchor
A significant risk factor for Camping World is its chunky debt burden, which includes over $1 billion in long-term commitments. Its debt is equal to nearly 30 percent of its market cap. While some debt is positive and can amplify returns when returns on invested capital exceed repayment obligations, too much can stymie growth as interest payments dominate.
On the plus side, CWH has a relatively low price-to-earnings ratio of around 7.0, which is very cheap, especially when compared to big tech valuations. Lemonis consistently buys shares of the stock, showing his complete confidence in its long-term prospects.
Is Camping World Stock A Sell: The Bottom Line
Camping World is an RV and outdoor retailer that prospered when difficulties in the airport, hotels, and cruise lines pushed people to travel in RVs. That propelled both the Camping World and Good Sam brands to record high revenues and valuations.
The company has a serendipitous business model for the times, meeting shifting consumer expectations towards solo travel versus collective airplane travel.
Its CEO has confidence in the brand, and investors can take solace in the valuation currently. The upside potential for the firm is to a share price of over $88 per share, representing an upside of almost 20%.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.