American vacationers took to the road this summer, pandemic be damned. But to stay in their own mobile bubbles, many did so in recreational vehicles. Sales of RVs roared to a near-record pace in June and July after having tumbled in the spring. RV stocks have followed.
Now the question for investors is: Will RVing go out of style once Covid-19 fades into the rearview mirror?
Even though this year’s Elkhart [Ind.] Open House trade show—one of RVdom’s showcases—was cancelled, due to the coronavirus, the industry expects to stay in the fast lane. The Recreational Vehicle Industry Association sees North American RV sales rising 4.5% in 2020, to 424,400 units. Not bad for a year with three lost months of sales, a deep recession, and pandemic-related supply chain and labor disruptions.
The trade group went up a gear with its 2021 outlook, which calls for a 19.5% surge in units sold, to 507,200. That would be the industry’s best year ever. RV makers
(ticker: THO) and
(WGO) have struck similarly optimistic tones.
Yet no one has been as bullish as recreational vehicle dealer
Camping World Holdings
CWH). In an investor day on Sept. 15, its CEO and chairman, Marcus Lemonis—host of the CNBC program The Profit—laid out the company’s objectives and targets, not just for 2021, but for the coming half-decade.
First is a goal of boosting adjusted earnings before interest, taxes, depreciation, and amortization (Ebitda) by a mid-single-digit percent annually over the next five years—from 2020’s projected $460 million to $490 million.
That outlook, J.P. Morgan analyst Ryan Brinkman recently wrote, “seemingly speaks to management’s belief in the staying power of recently stronger sales on the back of Covid-19, likely reinforced by anecdotal evidence they have observed, relative to new buyers coming into the market, which would also be consistent with our checks.” Brinkman rates the stock the equivalent of Buy, with a $40 price target.
Shares of Camping World have slid 26% since an early August high just above his target. That followed a nearly 11-fold surge from late March. The stock closed at $31.21 on Thursday, about 10.5 times next year’s forecast earnings and 23% below Wall Street’s average price target of $38.22.
Shares of Thor—whose brands include Airstream and Keystone—and Winnebago, plus components suppliers
(LCII), have all roared back from their March lows and are in positive territory for 2020. However, supply-chain challenges and a labor shortage in the RV industry’s capital of Elkhart could hurt profit margins.
Camping World may be a cleaner play. A roll-up of independent RV dealerships and regional chains, it dominates a fragmented market. Sales are forecast to exceed $5 billion this year.
Camping World also has plans for several adjacent business lines. One is a peer-to-peer RV rental marketplace, set to launch in spring 2021, similar to Outdoorsy or RVshare. Think of it as Airbnb for RVs. Another is an algorithm that generates a quote for used RV values. Management believes that tool alone could boost revenue by 5% a year in its used-RV sales business.
Barron’s noted that Camping World was worth a look in September 2018.
The pandemic might have created the perfect opportunity for the RV-curious to finally give it a shot. Whether vacationers will keep taking to the great outdoors in souped-up motorhomes, trailers, and buses is hard to predict. The greatest gains in Camping World and other RV stocks might have come and gone. But if the future is as sunny as the industry says, the shares could still be worth a trip for investors.
Write to Nicholas Jasinski at [email protected]