Recreational vehicle (RV) seller and RV parts supplier Camping World Holdings (CWH 1.31%) saw its share value experience lush growth in the warmth of summer 2020 as Americans cooped up during COVID-19 lockdowns escaped to the wide-open spaces. Driven by soaring demand for campers and other outdoor vehicles, its share price rose to heights not seen since February 2018 after bottoming out at its lowest level since the company's October 2016 IPO.
Since then, its share value has withered a little in the autumn chill, though the price is still well above anything seen throughout 2019 or pre-COVID 2020. Its recent third-quarter report was positive, but the question remains of how good a longer-term investment it is, given its history. Fools investing in consumer discretionary stocks might want to look at several factors before deciding whether Camping World will slip back into the doldrums of 2018 and 2019 or still has room for some bullish growth moving into next year.
April COVID brings May profits
The RV market in summer 2020 was one of the surprise gainers from the COVID-19 pandemic. Staples stocks and online retailers saw big gains from people stuck at home or avoiding crowded shopping venues during the pandemic's first major wave. But RV sales also rose, addressing people's psychological urge to experience a sense of freedom amid lockdowns and the closure of regular entertainment venues like theme parks, cruises, casinos, and movie theaters.
Image source: Getty Images.
The RV Industry Association, or RVIA, provides detailed metrics on the American surge in recreational vehicle spending during summer 2020. According to one of its reports, RV sales reached their highest level in four decades, soaring 53.5% from approximately 28,000 to around 43,000 units. Towable RVs such as travel trailers accounted for the vast majority of sales and saw shipments jump 56.6%, though motor homes and "park RVs" also saw solid double-digit gains.
Shipments slowed in August but still jumped 17.3% year over year, as reported in another RVIA article. A closer look at the figures shows this was not a steep drop-off from July; RV sales appear to be generally stronger in August, and the July 2020 surge wasn't an anomaly relative to August but a sign of the RV purchasing season starting a month early. This is illustrated by unit shipments: 33,674 in August 2019 and 39,489 in August 2020, the latter fairly close to July 2020 sales.
Zeroing in on Camping World's specific results, its Q3 2020 earnings report (released on Nov. 2) revealed that it shared fully in the soaring growth and profits of the summer quarter. The $1.679 billion in revenue the company reported represents a 21% surge year over year, which, according to Zacks Equity Research, is a 10.6% positive surprise above Wall Street analyst consensus predictions. Net income jumped 332.7%, and Camping World's Q3 $1.58 earnings per share (EPS) beat consensus estimates of $1.03 EPS by 53.4%.
During the follow-up earnings conference call, CEO Marcus Lemonis noted that vigorous sales continued into October, while the company has good liquidity, strong cash flow, and a 737-basis-point jump in gross margin year over year. Lemonis remarked that the company is directing its robust working capital toward clear strategic goals and is "focused on the most efficient use of our capital, through a combination of continued investment in the business, deleveraging and returning our capital to shareholders."
Looking ahead to 2021
Camping World, along with rivals such as Winnebago Industries (WGO 1.53%), which just closed out its fiscal year with a blowout fourth quarter, saw revenue, EPS, and share value skyrocket as pandemic-fueled summer demand drove record sales. But can the RV seller maintain its momentum into 2021, and will its share price climb to fresh heights?
Research by ITR Economics, a privately held economic research and consulting firm, supports the thesis of continued growth well into next year. The study, commissioned by the RVIA, projects RV shipments will probably jump to 507,200 units in 2021 (or even as high as 520,000), rising 19.5% over 2020's estimated 424,400 total. Citing COVID-19 as the driver, RVIA president Craig Kirby remarked that the sales explosion is likely to continue and grow larger as "people turn to RVs as a way to have the freedom to travel and experience an active outdoor lifestyle while also controlling their environment."
Image source: Getty Images.
The argument is strengthened by the fact that while Dr. Anthony Fauci says a COVID-19 vaccine might be available for the most vulnerable individuals by December 2020 or January 2021, the vaccine will control the pandemic, not eliminate it. The virus could continue to circulate at lower levels for years. COVID-19 cases are also spiking across multiple states, making it possible a "second wave" over the winter will have Americans ready to repeat their RV escapes when warm weather returns in 2021.
Camping World is working to cement its gains, aiming to launch 8 to 10 RV dealerships annually, and reaffirming its guidance for a targeted adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) figure of more than $500 million next year. It is also investing in its supply chain and leveraging its partnerships with several major parts suppliers to boost its competitive advantage in aftermarket RV parts and accessories, said CEO Lemonis during the Q3 earnings call.
The company is also diversifying its product and service offerings, taking the initiative with everything from an upcoming RV rental marketplace to an RV furniture partnership with kathy ireland Worldwide. All these factors suggest it is well positioned to continue its growth into the medium term at least.
As Americans continue their quest for the wide-open spaces, Camping World also has plenty of space for its share value to grow in the coming year, making it a stock well worth considering for your portfolio.
