The recreational vehicle (RV) industry is stuck in the mud at the moment thanks to a slowdown in consumer spending, but Wall Street is still excited about Winnebago Industries (WGO 0.90%) and Thor Industries (THO -0.16%). Shares of both RV giants have trounced the market's rally so far in 2023, in fact.
The two companies have demonstrated that they can thrive through the latest downturn without generating large losses. And reduced dealership inventory is paving the way for a solid sales rebound once the next cyclical upswing begins.
But which is the better stock for investors seeking exposure to this consumer discretionary industry? Let's dive right in and find out.
Recent results
Both companies are reporting weak sales that reflect poor selling conditions in the RV market following several years of above-average gains. Thor's sales fell 37% in the most recent quarter, and Winnebago posted a 38% slump as well.
The two RV specialists said that their sales declines were caused mostly by falling demand for RVs as interest rates rise and consumer spending slows. But increased promotions by dealerships played a big role in the decline, too, as these partners are looking to reduce inventory on hand. "Market conditions continue to be challenging," Thor CEO Bob Martin told investors in early June.
The good news
Winnebago is doing a better job protecting profits through this slump, though. Its gross profit margin is slightly higher than Thor's, in part thanks to its focused portfolio that includes luxury RV brands and a large boating division.
These assets had a direct impact on the bottom line last quarter, with Winnebago's operating profit margin holding up at close to 10% of sales, while Thor's comparable figure landed closer to 7%.
WGO operating margin (TTM) data by YCharts; TTM = trailing 12 months.
On the other hand, Thor has a much larger geographic sales footprint, potentially giving it some protection against a more protracted downturn in markets like the U.S. The company counts over $12 billion in annual sales, while Winnebago has a more focused portfolio of under $5 billion in annual revenue.
The cheaper stock
There isn't much distance between the stocks when it comes to valuation. Investors are paying about 0.5 times sales for both businesses right now, or about half the valuation that shareholders saw during the peak growth days in the pandemic.
That's an attractive discount considering the companies are still solidly profitable, and the RV industry isn't facing a glut of inventory. On the contrary, inventory levels have dropped sharply over the last few quarters, laying the groundwork for an eventual operating rebound, perhaps as early as 2024.
Growth-focused investors will likely prefer Winnebago's stock here because of its industry-leading margins and its focused portfolio. For a bit lower risk, though, consider Thor for its wider selling footprint.
In either case, the two companies could be nearing an inflection point where supply and demand match up again so that production rates can begin climbing. The best stock returns will come to investors who don't mind taking on some risk in buying Winnebago or Thor shares before that rebound becomes obvious to everyone on Wall Street.
