Playing matchmaker for Warren Buffett is a lot like trying to find a gift for someone who has everything. Arguably the greatest investor of our time, Buffett hasn't a had a problem finding the right stocks to buy or companies to acquire. Mr. Buffett, can I interest you in some Camping World Holdings (CWH -7.67%)?
Before getting into why the country's largest retailer of recreational vehicles (RVs) is a great fit for Berkshire Hathaway's (BRK.A -0.10%) (BRK.B -0.08%) portfolio, we may as well point out that Buffett's firm is already in the RV market. It bought RV manufacturer Forest River in 2005. It also owns GEICO, the insurer that has an entire department of specialists dedicated to owners of RVs, campers, motor homes, and travel trailers.
I still think Camping World would look good as a partial or total Buffett investment. Let's kick those tires.
Image source: Getty Images.
On the road again
The RV industry is a highly fragmented market, but Camping World is taking over. It's been able to grow its footprint across the country organically and through one-off acquisitions. It closed out 2021 with 187 retail locations across 40 different states.
Growth has been impressive. They say that the RV market is cyclical, but Camping World has rattled off at least eight consecutive years of positive revenue growth -- and this includes double-digit jumps in all but two of those years. The last two years have been particularly noteworthy. Revenue rose 11% in 2020, a rough year for most auto retailers. Traditional car sales faltered during the pandemic, but the crisis provided a boost for the RV market as folks realized that a home on wheels was the safest way to travel during the COVID-19 crisis.
Last year was even more impressive, with revenue growth of 27% to hit $6.9 billion. Most of the top-line growth wasn't from Camping World selling more RVs, even though it did sell nearly 10% more than it did in 2020. The real driver here was soaring prices for new and particularly used RVs. Margins skyrocketed, and net income nearly doubled to $6.07 a share. Did I mention that Camping World is trading for just six times earnings?
The new year will be more challenging without the unique tailwinds of 2020 and 2021. Analysts see a small bump in revenue and a step back on the bottom line for all of 2022. Here's where Camping World's ambitious payout strategy comes into play. Buffett isn't necessarily high on dividend investing, and Berkshire Hathaway itself doesn't declare distributions. He can still benefit from Camping World's aggressiveness in returning money to its shareholders.
Camping World more than doubled its regular quarterly dividend last year to $0.50 a share -- or $2 a share on an annualized basis. Two weeks ago, it announced another 25% increase, so it's on track to deliver $2.50 per share in distributions this year. This translates to a juicy 7.8% current yield. Camping World has also delivered a pair of larger special dividends twice over the past five years. In short, Camping World is a rewarding investment in many different ways. It checks off the value boxes of most income investors, and it happens to be in a market that Berkshire Hathaway already knows all too well.
Conflict resolution
The one speed bump here is that Buffett may already be in too deep in the RV market. Would owning a diversified RV superstore concept -- either outright or as a small shareholder -- be a problem for a company that's already an RV manufacturer? Camping World also owns the Good Sam Club, the equivalent of the American Automobile Association (AAA) for RVs with more than 2 million card-carrying members. Will owning an RV insurer be a conflict of interest for Good Sam Club?
I don't think so, and if anything, the synergies and opportunities are even more compelling. Buffett's already a pro when it comes to investing in RV stocks. Adding Camping World as at least one of the stocks in Berkshire Hathaway's widely followed portfolio is a good idea on wheels.
