Not only has Wall Street given Camping World Holdings (NYSE:CWH) a beatdown this year, causing its stock to plunge by 57% since Jan. 1, but they also think it has a lot further to fall. Even though industry peers Winnebago Industries (NYSE:WGO) and Thor Industries have also seen their shares decline, by 34% and 37%, respectively, these two don't have nearly the amount of people betting against the stock
Despite seemingly positive demographic trends pointing in its favor, short interest in the recreational-vehicle maker nearly doubled in the past two weeks to nearly 6.5 million shares or over 20% of Camping World's float. This suggests that there's more bad news to come and management's reassurance for a turnaround is not believable.
Is this just another case of Wall Street overreacting to some short-term headwinds, or are there some underlying trends that should have investors nervous?
The open road
Certainly on the surface there doesn't appear to be anything wrong with the industry. Data from the RV Industry Association shows business is strong, with wholesale shipments up 12% in April to over 47,000 vehicles, making it the best April on record. Year to date, they're up 13.1% to 184,528 vehicles, with almost every segment rising.
Last year marked the eighth consecutive year that wholesale shipments of RVs grew since the Great Recession, and 2018 looks like it may be yet another banner year.
Still, there may be some headwinds. Tariffs on steel and aluminum that the Trump administration announced in March and just imposed on the EU, Canada, and Mexico could negatively impact the RV industry -- and may explain why the prior quarter was a bad period for shares of RV makers. Rising gas prices probably aren't helping either, as GasBuddy shows the price of a gallon of regular gas is now about 20% higher than it was at the start of the year.
It used to be said that as goes General Motors, so goes the economy, but these days one can look to the leading RV makers to get a sense of discretionary consumer spending. And there are some worrisome signs.
A coming slowdown?
Camping World Holdings reported an 11% increase in inventory at the end of the first quarter, which it attributed to new dealer locations opening up. The company also identified the tough winter that much of the U.S. just went through as a likely factor in the early part of the key selling season. CEO Marcus Lemonis also said, however, "we believe the backdrop across the RV industry remains very positive."
Yet strong shipments early in the year, coupled with higher gas prices and a slow start to the buying season, may mean profit margins could be squeezed if dealers have to discount sharply to move product. While gas prices have eased up in the past week or so, pump prices of $3 a gallon may still make buyers leery of purchasing a gas-guzzling behemoth like an RV.
However, Camping World, Winnebago, and Thor Industries all see favorable market conditions ahead. In its earnings call last week Thor said the foreseeable future remains bright, and pointed to RV registrations rising in tandem with consumer confidence and RV sales in tune with increases in the country's gross domestic product.
Yet it also noted it was "experiencing inflationary price increases in certain raw material and commodity-based components" because of the new tariffs, though it believes over time it should be able to offset the higher costs. Winnebago says it may also increase prices if necessary to offset costs arising from tariffs.
Taking a different path
Lemonis, on the other hand, has ruled out raising prices: "I'm not accepting price increases and I'm not interested in hearing about all of the issues that create price increases," he told analysts, "because our customers don't want to hear about price increases either." Rather, he wants to remove costs from the manufacturing process so Camping World doesn't have to eat the difference.
He also told "Mad Money" host Jim Cramer his purchase of the bankrupt Gander Mountain outdoor recreation chain was misunderstood because he's not interested in getting into the retail business, but instead wanted to use it as a "backdoor entry" into certain markets to sell more RVs.
The market liked his explanation and sent Camping World's stock soaring. Even after gaining 30% over the past week, the RV maker's shares still trade at significant discounts to both the market and to its peers, going for just four times earnings and less than eight times next year's estimates. Trading at only a fraction of its sales and its long-term earnings growth potential, Camping World Holdings looks to a bargain.
The impact of tariffs and rising fuel costs can't be dismissed, but with an economy that's still expanding, historically low unemployment rates, rising household incomes suggests that the RV industry generally and Camping World Holdings specifically should be able to steer around any potholes trade policy throws in their path.