Patience is a tough thing in the stock market. Do you hang on to well-run companies through economic ups and downs, or do you take on the risk and added expenses of trying to time the markets?
Investors in RV maker Winnebago (NYSE:WGO) might be asking themselves some version of that question right now. This is a well-run company with several appealing operating characteristics. Still, it's trading near its 52-week lows as investors fret over whether consumers will continue to shell out money for big-ticket items like RVs.
Results in the company's fiscal fourth quarter reflect the end of the most recent boom in RV sales. Revenue fell 18% and deliveries of units dropped about 17% as buyers shifted to less expensive products within the company's fleet. Here's where the "well-run company" part helps. Despite a nasty sales decline, margins fell off only slightly. As a result, the profit damage was contained to a 19% drop.
Even though earnings were down for the fiscal year, cash flow was actually higher as improvements in working capital efficiency offset the net income decline. Operating cash flow grew by about 19% over last year, with free cash flow growth at roughly 24%. Putting some of this cash to work, the company pays a dividend and repurchases shares.
Winnebago's experience is not exactly unique. The stocks of Fleetwood (NYSE:FLE), Coachmen (NYSE:COA), and Monaco Coach (NYSE:MNC) are down over the past 52 weeks, and only ThorIndustries (NYSE:THO) has really bucked the trend with continued strong sales of its towables. Following of concerns of slowing demand, there have been some reports of more aggressive discounting with in the RV industry, which can boost the discounter's results in the short run but is usually bad for everyone over time.
I do believe that the economic concerns about consumer demand are legitimate. High energy prices and worries about housing and interest rates are valid factors, and no one's yet certain how significantly Katrina-related recovery and relief efforts will boost the RV market. Nevertheless, we're talking about a quality company with a history of very solid performance. Although my valuation models suggest that the stock is more or less fairly priced, paying a fair price for a very good company often works out over the long haul.
Hit the road with further Foolishness:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
