3 Reasons to Sell CWH and 1 Stock to Buy Instead

What a brutal six months it’s been for Camping World. The stock has dropped 44.8% and now trades at $9.85, rattling many shareholders. This might have investors contemplating their next move.

Is now the time to buy Camping World, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free for active Edge members.

Why Do We Think Camping World Will Underperform?

Despite the more favorable entry price, we're sitting this one out for now. Here are three reasons you should be careful with CWH and a stock we'd rather own.

1. Shrinking Same-Store Sales Indicate Waning Demand

Same-store sales is an industry measure of whether revenue is growing at existing stores, and it is driven by customer visits (often called traffic) and the average spending per customer (ticket).

Camping World’s demand has been shrinking over the last two years as its same-store sales have averaged 3.6% annual declines.

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 58.4% 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 $174.9 million of cash over the last year, and its $2.41 billion of debt exceeds the $230.5 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 13× forward P/E (or $9.85 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are more exciting stocks to buy at the moment. Let us point you toward an all-weather company that owns household favorite Taco Bell.

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