Camping World (CWH): Buy, Sell, or Hold Post Q4 Earnings?

What a brutal six months it’s been for Camping World. The stock has dropped 30.6% and now trades at $16.87, rattling many shareholders. This may have investors wondering how to approach the situation.

Is there a buying opportunity in Camping World, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Even with the cheaper entry price, we're sitting this one out for now. Here are three reasons why there are better opportunities than CWH and a stock we'd rather own.

Why Is Camping World Not Exciting?

Founded in 1966 as a single recreational vehicle (RV) dealership, Camping World (NYSE:CWH) still sells RVs along with boats and general merchandise for outdoor activities.

1. Shrinking Same-Store Sales Indicate Waning Demand

Same-store sales is an industry measure of whether revenue is growing at existing stores, and it is driven by customer visits (often called traffic) and the average spending per customer (ticket).

Camping World’s demand has been shrinking over the last two years as its same-store sales have averaged 14.6% annual declines.

Note that Camping World reports its same-store sales intermittently, so some data points are missing in the chart below.Camping World Same-Store Sales Growth

2. Weak Operating Margin Could Cause Trouble

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Camping World was profitable over the last two years but held back by its large cost base. Its average operating margin of 3.4% was weak for a consumer retail business. This result isn’t too surprising given its low gross margin as a starting point.Camping World Trailing 12-Month Operating Margin (GAAP)

3. High Debt Levels Increase Risk

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Camping World’s $2.47 billion of debt exceeds the $208.4 million of cash on its balance sheet. Furthermore, its 9× net-debt-to-EBITDA ratio (based on its EBITDA of $261.4 million over the last 12 months) shows the company is overleveraged.Camping World Net Debt Position

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Camping World could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

Story Continues

We hope Camping World can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

Final Judgment

Camping World isn’t a terrible business, but it doesn’t pass our quality test. Following the recent decline, the stock trades at 18.8× forward price-to-earnings (or $16.87 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better investment opportunities out there. We’d suggest looking at an all-weather company that owns household favorite Taco Bell.

Stocks We Like More Than Camping World

The Trump trade may have passed, but rates are still dropping and inflation is still cooling. Opportunities are ripe for those ready to act - and we’re here to help you pick them.

Get started by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.

View Comments