David Abrams (Trades, Portfolio)’ Abrams Capital Management disclosed last week that the firm established a new holding in Camping World Holdings Inc. (CWH, Financial) according to GuruFocus real-time picks.
The former Seth Klarman (Trades, Portfolio) protégé typically invests in companies through a fundamental, value-oriented approach. According to the firm’s website, investments are generally made with a long-term time horizon and are usually “unlevered and long-biased.” The firm’s top three sectors in terms of portfolio weight are financial services, health care and consumer discretionary.
Transaction details
Abrams Capital Management invested in 3 million shares of Camping World Holdings for $20.66 per share. The firm dedicated 1.69% of its portfolio to the position. Based on the company’s Peter Lynch Chart, the company trades close to its median price-earnings valuation.
Company background
Lincolnshire, Illinois-based Camping World provides services, protection plans, products and resources for recreational vehicle enthusiasts across the U.S. The company’s strengths according to its latest annual report include its iconic brands like Camping World and Good Sam, comprehensive portfolio of services, a strong customer database, and decentralized and flat management structure.
CEO Marcus Lemonis said on Aug. 7 that revenues for the second quarter reached an all-time high of $1.445 billion, up 13% year over year driven by strong improvements to the company’s RV business. Even though unseasonal weather impacted the early selling season, Camping World “balanced its promotional activity to maintain strong profitability while driving sales growth” according to the CEO.
Warning signs include increasing debt and low turnover
Although the company’s three-year revenue growth rate of 72.10% outperforms 99% of global RV companies, Camping World’s profitability ranks a modest 5 out of 10 primarily due to net margins and returns on assets underperforming over 75% of global competitors.
GuruFocus ranks the company’s financial strength 5 out of 10 and lists two red flags: increasing long-term debt and days inventory. The company issued $916.414 million in long-term debt over the past three years, increasing its debt-to-Ebitda ratio above Joel Tillinghast’s safe threshold of 4.
Camping World’s Piotroski F-score ranks 4 out of 9 on several factors, including lower returns on assets, higher leverage and lower asset turnover year over year. Possible risks driving the lower returns on assets and higher days inventory include competition in the market for RV services, protection plans and resources as well as delays in opening or acquiring new retail locations.
See also
Abrams’ other auto holdings include Lithia Motors Inc. (LAD, Financial), Asbury Automotive Group Inc. (ABG, Financial) and Group 1 Automotive Inc. (GPI, Financial). With a 6.72% portfolio weight, O’Reilly Automotive Inc. (ORLY, Financial) represents Abrams’ sixth-largest holding.
Disclosure: As of this writing, the author is long ORLY.
