What a brutal six months it’s been for Camping World. The stock has dropped 36.7% and now trades at $6.97, rattling many shareholders. This might have investors contemplating their next move.
Is there a buying opportunity in Camping World, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Do We Think Camping World Will Underperform?
Even with the cheaper entry price, we’re sitting this one out for now. Here are three reasons we avoid CWH, plus one stock we’d rather own.
1. Flat Same-Store Sales Indicate Weak Demand
Same-store sales is a key performance indicator used to measure organic growth at brick-and-mortar shops for at least a year.
Camping World’s demand within its existing locations has barely increased over the last two years as its same-store sales were flat.
2. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for Camping World, its EPS declined by 73.3% annually over the last three years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.
3. Short Cash Runway Exposes Shareholders to Potential Dilution
As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.
Camping World burned through $105.7 million of cash over the last year, and its $2.41 billion of debt exceeds the $199.8 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.
Unless the Camping World’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.
We remain cautious of Camping World until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.
Final Judgment
We see the value of companies helping consumers, but in the case of Camping World, we’re out. After the recent drawdown, the stock trades at 9.9× forward P/E (or $6.97 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better stocks to buy right now. We’d suggest looking at one of our top digital advertising picks.
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