This Is A Turning Point For Camping World
Camping World (NYSE:CWH) has been one of the pandemic-winners this year to be sure. The company has seen no small amount of demand for its products, a double-digit surge in revenue, and the outlook keeps getting better. Oddly enough there are many investors that underestimated not only the company but the strength of trends unleashed by the pandemic. Share prices have been trending lower for three months on the expectation that the good times can’t last and quite frankly they can, and they are. What the market is getting wrong is that camping is fun. The right gear and a nice camper make it easy to do. Since no one is spending money on hotels or airplanes why not buy a camper and enjoy many weekends of vacations?
Camping World Knocks The Ball Out Of The Park
Camping World CEO Marcus Lemonis reported such a strong quarter that he and his team felt the need to raise guidance. On the top-line, revenue grew 20.9% to $1.68 billion in the 3rd quarter topping expectations by a full 1000 basis points. The only bad news is that revenue slowed a bit from the previous quarter but, once again, much less than expected.
On a segment basis, the company reports demand was strong across most segments with notable strength in the lower-priced models. SG&A expenses increased in tandem with the surge in business but decreased as a percentage of sales. Moving down, the gross margins increased more than 730 basis points to 31.8% and net margins rose to 9.2%. On the bottom line, both GAAP and Adjusted EPS beat the consensus targets. Adjusted EPS came in at $1.58 per share and topped the consensus midpoint by $0.41.
“Coming off of an extremely positive second quarter, demand remained strong and we were able to achieve record breaking third quarter results with net income of $155 million and Adjusted EBITDA of $217 million. Our ability to focus on fundamentals including maximizing gross margins and maintaining expense controls was key to our success in the quarter. Our year to date net income was $304 million and Adjusted EBITDA was $474 million.”\
Looking forward, the company sees demand holding up over the next quarter and fueling another quarter of strong growth. The company raised its guidance to a new EBITDA range of $495 to $515 which is above the high-end of the previous range.
Building A Fortress With Camping World
Camping World is not without debt but what growth company is? What you get in exchange for it is a large cash position, double-digit growth, and plenty of free-cash-flow. Over the last quarter, FCF improved so much as to bring the companies leverage ratio down to the 2.3X range. Looking forward, the company expects the leverage ratio to fall below 2.0% and it could fall farther. The good news for investors is that Camping World is putting its cash to good use. As well as its plans to grow the company is paying out a nice dividend. The “official” payout is $0.36 annually or about 1.36%. The company has been paying a special dividend each quarter as well for the past two years and both payments are growing. The last declaration upped the special to $0.14 quarterly bringing the forward yield to 3.35%.
There’s A Deep Value At Camping World
Camping World is trading at a mere 8X it’s consensus estimates for this year and next. That’s a deep value and doesn’t take into consideration the fact that this year’s consensus is woefully too low. The YTD results have already matched the consensus for F2020 which puts the P/E closer to the 6X level than not. Regardless, a company with this kind of growth, a healthy balance sheet, and 3.35% yield should be trading at a much higher valuation. Even without the special dividend, this stock should be trading higher.
Looking at the chart, I want to say that Camping World is putting in a bottom but I have been fooled before. The Q3 news caused a nice pop but the intraday action is not bullish. In fact, if not for the potential of support at the recent low I would say today’s action confirms the downtrend. In that case, look for prices to break the $26 and move down to $24 or maybe even as low as $20. If not and support is confirmed at the $26 level a bottom may in fact be in. In that case, I think Camping World is a screaming buy with years of growth ahead of it.
Before you consider Camping World, you'll want to hear this.
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