Dealer of camping products and recreational vehicles (RV) Camping World (NYSE: CWH) has been a direct benefactor of the pandemic as consumers discovered or rediscovered outdoor leisure activities. lifting COVID restrictions and distribution of vaccinations have not stopped the growth at Camping World. Investors are wondering if a new normal is emerging for the industry. Of a taxation point of view, stocks trade very cheaply at just 5.3x future earnings with a hefty annual dividend of 8.75%, assuming future estimates are not revised downwards. It actually trades at a lower valuation than RV makers Winnebago (NYSE: WHO) trading a low 4.1X forward profit with a stingy annual dividend yield of 1.9% or Thor Industries (NYSE: THO) trading at 9.2x future earnings and an annual dividend yield of 2.3%.
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Brace yourself for a recession
The US Federal Reserve has increased interest 3% in the past six months in an effort to curb rampant inflation. However, the results came in slowly as the CPI for September was 8.2% and missed analyst estimates of 8.1%, but still showed progress from the June highs of 9.1%. The drop (-36%) in deliveries of industrial motorhomes in August may foreshadow a drop in sales of Camping World motorhomes. Normalization and the potential for a slowdown in sales reported in the next earnings report should prompt investors to think about rushing into the stock. The RV business has taken off since the pandemic lockdowns and it appears to be very sticky as underlying consumer lifestyle changes continue to drive demand. However, rising interest rates and declining consumer cyclical spending has likely negatively impacted demand and investors should brace for a potential deficit. Supply chain restrictions have been eased, as evidenced by vehicle inventories more than doubling since the same period last year.
Minimal and Mobile Lifestyle Trend Driver
The pandemic reinforced the trend of minimalist and mobile living and experiential travel and outdoor recreation. There are plenty of new content providers on YouTube (NASDAQ: GOOGL) expounding the joys of life and camping as a lifestyle modification that goes beyond just vacation, but is applicable as a mobile home and office. It is possible that a recession could drive more consumers towards minimalist and mobile lives, especially as fuel costs continue to fall.
Will normalization come in the third quarter of 2022?
On August 2, 2022, Camping World released its fiscal second quarter 2022 results for the quarter ended June 2022. The company reported earnings of $2.16 per share, better than analyst estimates of $1.79 per share at $0.37 per share. Revenues grew 5.2% year-over-year (YoY) to $2.17 billion, surpassing consensus analyst estimates of $2.03 billion. Inventories of new and used vehicles rose to $1.7 billion from $782.5 billion a year ago due to the easing of supply chain restrictions. The company will continue to pay its quarterly dividend of $0.625 per share or $2.50 per share on an annual basis.
The Prophet Speaks
Marcus Lemonis, CEO of Camping World Celebrity, commented: “We are pleased to announce the sale of nearly 39,000 new and used RVs, which contributed to record second-quarter revenue. We believe our team has both the focus and experience to navigate our business through changes in market conditions, as evidenced by our solid financial results.”
This is what the charts say
Using the gun cards on the weekly and daily timeframes gives a broader picture of the landscape for the CWH stock. The weekly gun chart broke down as stocks fell below $27.17 Fibonacci (fib) level to bottom near the $23.03 fib before staging a rally. The weekly 5-period moving average (MA) resistance is still falling at $25.96, followed by the 15-period rising MA at $27.68. The 200-period weekly MA support is slowly moving towards $25.23. The 50-period weekly MA resistance is falling to $30.81. the weekly market structure layer (MSL) buy trigger is still holding $24.35. The weekly stochastic drops through the 40 band and the weekly lower Bollinger Bands (BBs) are at $18.74. The daily gun chart is in an uptrend, but is losing steam as the daily 5-period MA support is tested at $27.39, followed by a 15-period rising MA at $26.14. Daily stochastics ripped through the 80 band. The 50-period daily MA resistance at $28.83 almost overlaps with the 200-period daily MA resistance at $28.99. The daily upper BBs are $30.27 and the daily lower BBs are $22.14. With the potential for a weak earnings report, it is best to consider waiting for the earnings reaction before a sell-off to attractive pullback levels at the $25.39, $23.98 fib, $23.03 fib, $20.83 fib, $19.55 fib and the $17.70 fib level.
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