Camping World (NYSE:CWH) share price has really been on a rocky road the past year or so with a decline of around 35% now in the rearview mirror.
Is there something fundamental really wrong with the business or is now a dip that bargain hunters should be scrutinizing with a view to snapping up a deal?
Why Has Camping World Sold Off?
The trends in the RV market have been tough, and over the past year alone from May to May YoY, shipments tumbled by about 15%.
Demand has cooled for larger, costlier models while less-expensive camper options appear to be gaining popularity with American consumers.
These trends will likely not be helped by ongoing tariff pressures, which are likely to make RVs more expensive across the board. Although American consumer sentiment did tick up modestly in July, a general RV boom doesn’t appear to be on the immediate horizon.
Camping World experienced yet another selloff when its Q2 earnings were reported. Shares lost about 15 percent after the report came out due to an earnings miss.
While the Q2 earnings report was comparatively strong (see below), the miss on EPS appears to have further eroded already shaky investor confidence in the business.
Were There Bright Spots in the Q2 Report?
Camping World’s Q2 report did include some positive results despite the market’s generally negative reaction to it.
The top line increased by 9.4% year-over-year to $2.0 billion, driven by a record-high volume of 45,000 units sold. This result bucked the general trend of the RV market, demonstrating that Camping World could successfully breathe new life into sales at a time when the RV industry as a whole is struggling.
Camping World is also executing a cost-reduction plan that could help its profitability in the long run. The business has already consolidated 16 of its locations and reduced its staff by about 900. In total, Camping World has been able to bring down its cost on new vehicles sold by over 9 percent.
Turning to profitability, Camping World’s adjusted EPS of $0.57 missed expectations of $0.60 per share, a fact that contributed significantly to the post-earnings selloff. Even so, this result represented a 50 percent increase over the year-ago quarter. GAAP net income, meanwhile, increased by 145 percent to $57.5 million.
With that said, the Q2 report wasn’t without its problem areas. To begin with, the higher volume of RVs sold during the quarter came at the expense of the average price Camping World got for them.
The average sale price on new vehicles declined by 10.6 percent compared to the previous year, more than the amount the business has been able to save on the cost of those vehicles. Meanwhile, used RV prices retreated by 1.2 percent.
Is CWH an Undervalued Buy?
On the surface, Camping World shows many signs of being heavily undervalued. The stock trades at just 0.2 times sales, less than one-third of the sector average.
It is also trading at a very modest price-to-cash-flow ratio of 5.8. These multiples, together with the fact that the average analyst price target of $20.83 is almost 40 percent above the stock’s current trading price, seem to suggest that CWH could be well below its fair value.
Under other circumstances, Camping World could be a value trap, considering that share prices have continued to decline despite what many would regard as already low price multiples.
As Q2’s earnings showed, though, Camping World is making meaningful progress in turning around its business and putting itself back on track for growth.
The changes management is making could take some time to show up in CWH share prices, but it’s difficult to call a business that is actively showing signs of a successful turnaround a value trap.
Will Camping World Stock Double From Here?
Camping World represents a very interesting mix of positives and negatives for investors. On the plus side, the business has made great progress in regaining its footing for revenue growth while also improving its profitability this year. Cost-cutting efforts at Camping World seem to be paying off in a major way, and the stock is even priced at what could prove to be attractive multiples.
The problem, however, is likely to be the generally soft nature of the RV market at the moment. Analysts expect revenues to fall in the future due to weaker RV demand, something that could put Camping World in a difficult position.
The effects of rising prices and multiple layers of tariffs on consumer spending will likely make big-ticket luxury purchases like RVs unappealing for many Americans for quite some time. As such, it may be a while before CWH has a chance to rebound in a sustained way.
On the whole, Camping World is a somewhat distressed business that could offer substantial rewards to investors who are willing to take the risk of buying and holding it through this difficult period. CWH has been through cyclical spikes and troughs before, but management currently seems to be doing a fairly good job of putting the business back on the right track.
If and when the economic picture improves and Americans are more willing to buy larger, higher-priced RVs again, Camping World could be a solid stock to own. In the meantime, shareholders have the benefit of a 3.4 percent dividend yield that handily outperformed the dividends produced by the S&P 500.
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.