Camping World Pulls Back But Wait To Buy More

Camping World Falls For No Good Reason 

Shares of Camping World NYSE: CWH are falling for no good reason other than the acceleration of growth sparked by the pandemic has peaked. The business is failing and it hasn’t stopped growing but YOY growth is slowing on a quarterly basis and the outlook, as robust as it is, may have it all priced in. That may be why the short-sellers piled in so strongly, pushing the short interest up to over 25% at the last reporting. The bad news is that share prices may continue to fall under this pressure, the good news is the company is in great shape and paying a very attractive dividend while buying back shares. What this means to us is that when it bottoms it’ll be a great stock to buy and there is a real chance of a short squeeze once it does. Institutional holdings in this company are over 80% and on the rise with a high insider ratio as well so the shares are tightly held. 

Camping World Has Mixed Quarter, Shares Fall 

Camping World had a mixed quarter but it is another situation where great results are marred by the analyst's high expectations. The company reported $1.4 billion in revenue for a gain of 23.9% on top of last year’s 17.5% gain. The revenue is a quarterly record and beat the Marketbeat.com consensus by $0.10 billion or 760 basis points. The company even reported an increase in margin, 184 points at the gross level and 90 at the operating, but this is where the bad news begins. The margins improved but at a slower rate than in the previous few quarters and below expectations. This left the GAAP EPS of 0.54 more than $0.10 short of the consensus which is not good despite being up $0.20 from last year. 

“Since we took the Company public at the end of 2016, we have almost doubled our annual revenue to $6.9 billion and more than tripled our annual net income and Adjusted EBITDA (1) to $642 million and $942 million, respectively. It is our management team’s plan to continue positioning the Company for growth over the next five years. The long-term trends along with our strong cash flow have us focused on three things: growing our business, repurchasing our shares, and returning capital to our shareholders,” said Marcus Lemonis, Chairman and CEO of Camping World Holdings, Inc.

The takeaways in the report for us, however, are the fact FY2021 EBITDA is up 66.85% from last year and fueled a 75% increase in inventory, a reduction in debt, the opening of 16 new stores, an increase in cash, a healthy buyback program, and a growing dividend. The company just raised the distribution again and to a phenomenal 7.9% yield that is incredibly safe. The company is paying out less than 10% of its earnings and has a rock-solid balance sheet. The buy-back program is equally attractive with $200 million under the new authorization. That’s worth about 14% of the market cap with shares trading near $29.50. 

The Technical Outlook: Range-Bound Camping World Moves Lower 

Shares of Camping World are down more than 7.0% in the wake of the report and look like they will head lower. Price action over the past year confirmed the top of a trading range at $46 and now the indications are downward. The post-release action is confirming the downtrend by breaking out of a bearish flag pattern and could take price action down to the bottom of the range near $26. We would expect to see the stock bottom at this level and begin moving sideways if not at a higher level. A move below this level would take some change to the fundamental picture and we don’t see that in the cards. Longer-term, this is one cheap stock trading at less than 5X its earnings and yielding nearly 8%. That deal will not last.