Camping World’s stock price has taken a beating over the past six months, shedding 58.8% of its value and falling to $6.68 per share. This may have investors wondering how to approach the situation.
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 though the stock has become cheaper, we don't have much confidence in Camping World. Here are three reasons why CWH doesn't excite us and a stock we'd rather own.
1. Shrinking Same-Store Sales Indicate Waning Demand
Same-store sales show the change in sales for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year. This is a key performance indicator because it measures organic growth.
Camping World’s demand has been shrinking over the last two years as its same-store sales have averaged 1.2% annual declines.
2. Free Cash Flow Margin Dropping
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Camping World’s margin dropped by 6.6 percentage points over the last year. This decrease warrants extra caution because Camping World failed to grow its same-store sales. Its cash profitability could decay further if it tries to reignite growth by opening new stores.
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 $261.4 million of cash over the last year, and its $2.47 billion of debt exceeds the $215 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 cheer for all companies serving everyday consumers, but in the case of Camping World, we’ll be cheering from the sidelines. Following the recent decline, the stock trades at 12.3× forward P/E (or $6.68 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better stocks to buy right now. Let us point you toward the most dominant software business in the world.
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