- By GF Value
The stock of Camping World Holdings (NYSE:CWH, 30-year Financials) is believed to be significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $45.77 per share and the market cap of $4.1 billion, Camping World Holdings stock is estimated to be significantly overvalued. GF Value for Camping World Holdings is shown in the chart below.
Because Camping World Holdings is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which is estimated to grow 11.44% annually over the next three to five years.
It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Camping World Holdings has a cash-to-debt ratio of 0.10, which is worse than 87% of the companies in Vehicles & Parts industry. The overall financial strength of Camping World Holdings is 4 out of 10, which indicates that the financial strength of Camping World Holdings is poor. This is the debt and cash of Camping World Holdings over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Camping World Holdings has been profitable 7 years over the past 10 years. During the past 12 months, the company had revenues of $6 billion and earnings of $4.72 a share. Its operating margin of 10.78% better than 83% of the companies in Vehicles & Parts industry. Overall, GuruFocus ranks Camping World Holdings's profitability as fair. This is the revenue and net income of Camping World Holdings over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Camping World Holdings is -5.4%, which ranks worse than 73% of the companies in Vehicles & Parts industry. The 3-year average EBITDA growth rate is -10.3%, which ranks worse than 68% of the companies in Vehicles & Parts industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Camping World Holdings's return on invested capital is 20.96, and its cost of capital is 14.21. The historical ROIC vs WACC comparison of Camping World Holdings is shown below:
Overall, The stock of Camping World Holdings (NYSE:CWH, 30-year Financials) gives every indication of being significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 68% of the companies in Vehicles & Parts industry. To learn more about Camping World Holdings stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.