It's typically better to bet on a brand rather than the people running them because, at some point, the people will exit and the brand will get new stewards. In some cases, however, ownership has a hefty stake in the business that ensures brand value and growth. That's the case with Camping World Holdings (CWH, Financial).
Camping World sells recreational vehicles (RVs) and the services that go along with owning one. If you watch The Profit on CNBC, you know the company’s CEO Marcus Lemonis and his business style. With Camping World, he’s built a an incredible recreational goods and service business. It generates over $4.4 billion (and growing) a year in sales with gross margins north of 30%.
After going public at $22 in 2016, the stock shot up to $45 by the start of 2018. But since then the stock has been almost cut in half and now trades just shy of $26 a share. Even if you missed the $8 run since the beginning of this month, the fundamentals remain strong.
Fiscal 2017 summary
- Total revenue increased 21.8% to $4.3 billion.
- Gross profit increased 25.1% to $1.2 billion and gross margin increased to 29.1%.
- Income from operations increased 29.4% to $361.4 million.
- Net income was $186.0 million and included a $99.7 million tax receivable liability adjustment to other income.
My questions
What will the demand for leisure and recreational vehicles be in the coming months and years?
I have a friend from college in his early 40s who ran a successful commercial loan business. A couple of years ago, he decided to buy an RV and spend a year traveling the U.S. with his wife and two children. They loved it. Americans love being active, being outdoors and traveling.
For years analysts have pointed to the baby boomers aging and spending money on things like RVs, but the rate of growth over the short term is uncertain. Many people are continuing to work or even get back into the workforce. Of course, Camping World could pivot to other goods and services in time, or roll up future acquisitions into a Berkshire Hathaway-style organization.
If it doesn’t, will the company still be able to grow through acquisitions and ancillary revenue generation?
Yes. Again, if you watch The Profit, it portrays Lemonis as an intelligent, likable, do-what-it-takes business leader. He’s 44 and has the majority of his net worth tied to Camping World. Chances are good he’ll be around for decades to come.
Can the company earn over $3 per share in the next year as analysts expect?
If it does, and garners an industry average 18.6 price multiple, the stock is an easy double to $55. Even if that takes two years at $2.86 and then $3.25, it will be worth the wait. There are not many better investments out there in the market than Camping World. In fact, if judged on a price-sales basis, the stock should already be in the $55 range. One thing is for sure: The price right now makes it a major bargain.
What about the gurus?
Steven Cohen (Trades, Portfolio), Chuck Royce (Trades, Portfolio) and Ron Baron (Trades, Portfolio) are all down in their Camping World positions, and we’ll see if they continue to be at the end of this month as 13-F filings are public. Considering Lemonis bought close to a million dollars worth of the stock in May, I’d be shocked if these gurus are selling now.
Disclosure: I am long Camping World.
