Shares of recreational vehicle retailer Camping World Holdings (NYSE:CWH) dropped 11% in October according to data from S&P Global Market Intelligence, continuing a decline that started in early August. From its August high the stock had fallen by roughly 37% at the end of October. However, Camping World shares rallied 80% over the first 10 months of the year. There's a lot to unpack here.
Given the global pandemic, Camping World's business of selling RVs, and providing other products and services to those who buy them, would seem to be well positioned. Jumping in a camper and taking off on the open road for some rest and relaxation is a great way to avoid the group situations that often accompany going to a hotel or other major attractions, like amusement parks. And the company's results suggest that it has seen demand increase. Second-quarter revenue was higher by 9% year over year and adjusted EBITDA increased by 122%. Third-quarter earnings, which were released in early November, show further improvement, with revenue up 21% year over year and adjusted EBITDA rising by 258%.
That suggests that investors should be getting more upbeat about the stock, not less. However, a look at the stock chart helps to explain some things. As noted above, even after losing more than a third of its value between early August and the end of October, Camping World's stock was still up 80% over the first 10 months of 2020. That's a pretty big gain, given that a recession started in February, something that would normally be seen as a bad indicator for discretionary purchases like RVs.
That brings up the idea that COVID-19 has created a unique sales environment that may not last for very long. And that could mean that the sales boost Camping World is experiencing right now is a temporary blip or, even worse, is simply pulling future sales forward. In the latter scenario, Camping World's results after the world figures out how to live with COVID-19 could stagnate or even fall. After such a large run up (at its peak in August the stock was up 185% for the year) and given the potentially temporary nature of the company's strong results, it makes sense that long-term investors might be willing to take some profits.
Camping World's third-quarter earnings, released after October ended, show it continues to thrive in a world where social distancing is the norm. But investors should think carefully about the sustainability of the boost the company is getting today from the pandemic. Continuing to hold on to a material share price gain in 2020, it looks like there's still a lot of good news priced in here.