Camping World (CWH) has soared off the COVID-19 lows as the RV business has benefitted from a world where being away from other humans is appealing. A big key to understanding how the stock could still be cheap up in the $30s is knowing Camping World traded above $40 as recently as 2018. The company took a disastrous plan to expand into new product categories and the goal to refocus on RVs reinforced my bullish thesis for the stock to return to all-time highs.
Image Source: Camping World website
New Long-Term Plan
Despite all of the struggles over the last few years, Camping World now expects to top a 2021 adjusted EBITDA target of $500 million. Even better, the company forecasts growing adjusted EBITDA by mid-single digits over the next 5 years above a $475 million target for 2020.
Camping World is only trading with a market valuation of $2.7 billion so naturally the stock is cheap trading at barely above 5x growing EBITDA targets. Even at only 5% growth, the RV company will generate the following EBITDA numbers:
- 2021 – $500M
- 2022 – $525M
- 2023 – $551M
- 2024 – $579M
- 2025 – $608M
The stock only trades at 4.5x these conservative EBITDA targets for 2025. Camping World likely easily surpasses 5% growth.
The company plans to open or acquire 8-10 locations each year on top of a current 164 RV store base. At the midpoint, Camping World would grow new RV locations by over 5% annually.
With expanding features such as a peer-to-peer RV rental marketplace and a mobile service marketplace, Camping World is clearly set to expand revenues and EBITDA profits in excess of 5%. If the company can actually achieve 10% growth, Camping World would actually generate the following adjusted EBITDA targets on top of the $475 million target in 2020:
- 2021 – $523M
- 2022 – $575M
- 2023 – $632M
- 2024 – $695M
- 2025 – $765M
Under this scenario, Camping World is an insanely cheap stock trading at only 3.5x long-term EBITDA targets. At a 10% EBITDA growth rate, the stock could easily obtain a 10x to 15x multiple.
With some research estimating the RV market to grow by 7% annually, Camping World should come closer to the 10% growth rate, not the mid-single digit target.
RV Sector Value
Even in the RV sector, Camping World is the cheapest sector stock. Looking at forward P/E ratios, the stock trades at a decent discount to both Thor Industries (THO) and Winnebago Industries (WGO).
Clearly, the market doesn’t like that Camping World has total debt of $1.65 billion for a company only scheduled to generate $475 million in EBITDA this year. Investors need to realize that a substantial portion of these debt levels are covered by $1.1 billion in RV inventories and $228 million in cash and another $255 million covered by contracts and A/R.
Retailers regularly carry a lot of debt due to large property and equipment assets along with the inventories. The debt isn’t built up from years of losses.
The key investors takeaway is that Camping World is a cheap stock trading at a discount to their likely EBITDA growth rate. The stock appears to be in a slight downtrend as the market absorbs the possible headwinds for the sector with inventory shortages and a post-pandemic hangover. Investors should use weakness to own the stock for those that missed the extreme lows back in the spring.
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Disclosure: I am/we are long CWH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.