RV stocks may stay in the wilderness
Plunge shows how economically sensitive the shares are and what may lie ahead
This time a year ago, the recreational-vehicle industry was king not only of the road but of the stock market. Shares of manufacturers were near alltime highs and industry experts were projecting an even better 2018.
But what the bulls missed was the unusual confluence of events—strong consumer confidence, cheap financing, affordable fuel and a newfound “hip factor”—that drove the RV industry’s good fortune. And they failed to appreciate how fleeting that moment could be.
The major risk was high valuation for a cyclical industry late in the economic cycle. Even a whiff of a change in any of the factors propelling the industry would be enough to send RV makers Thor Industries and Winnebago Industries skidding.
There was more than a whiff of bad news. First it was economic factors like rising rates, steel and aluminum tariffs and, until this autumn, higher pump prices, that sparked worries. At the time, the industry was ramping up production after two years in which demand outstripped supply. RV Indus- try Association data shows that year-over-year monthly wholesale shipments continued rising until May. By September, though, they were down by 30% year-over-year.
Shares of the big RV makers followed. In the past year Thor has lost about two-thirds of its value and Winnebago some 57%. Leading RV retailer Camping World Holdings has done even worse, losing threequarters of its value.
Inventory ballooned, so while retail sales remained stable to slightly down, according to Thor, the company’s shipments are down significantly. Its most recent results for its fiscal first quarter showed a 21.3% drop in revenue and an 83.2% drop in pretax profit.
Thor says it is working to clear excess inventory. It has cut back production and increased promotional activity. It also agreed to buy Erwin Hymer, a big European RV maker.
If the slowdown is just a hiccup then this may be a buying opportunity, but fears of an economic slowdown in 2019 certainly should be on investors’ minds. In the 1970s when energy prices soared and borrowing costs spiked, shares of then-leader Winnebago plunged by more than 90%. A similar thing happened to its shares during the housing crisis.
Today’s RV market is different from the one of earlier decades and that could mitigate the fall or worsen it. On the one hand, record unit sales consist more of cheaper towable vehicles than more expensive and gasguzzling vehicles with motors. On the other hand, the “glamping” trend that has seen a much younger generation embrace the RV lifestyle could fade with changing sensibilities or financial priorities.
Proceed with caution.