Why Warren Buffett Would Love Camping World Holdings

Playing matchmaker for Warren Buffett is rather a lot like looking for a present for somebody who has all the pieces. Arguably the best investor of our time, Buffett hasn’t a had an issue discovering the best shares to purchase or firms to accumulate. Mr. Buffett, can I curiosity you in some Tenting World Holdings (NYSE: CWH)?

Earlier than moving into why the nation’s largest retailer of leisure autos (RVs) is a good match for Berkshire Hathaway‘s (NYSE: BRK.A) (NYSE: BRK.B) portfolio, we could as effectively level out that Buffett’s agency is already in the RV market. It purchased RV producer Forest River in 2005. It additionally owns GEICO, the insurer that has a whole division of specialists devoted to house owners of RVs, campers, motor houses, and journey trailers.

I nonetheless assume Tenting World would look good as a partial or whole Buffett funding. Let’s kick these tires.

Someone enjoying coffee from the back of an RV while admiring the view.

Picture supply: Getty Photographs.

On the highway once more

The RV business is a extremely fragmented market, however Tenting World is taking on. It has been in a position to develop its footprint throughout the nation organically and thru one-off acquisitions. It closed out 2021 with 187 retail places throughout 40 totally different states.

Progress has been spectacular. They are saying that the RV market is cyclical, however Tenting World has rattled off at the very least eight consecutive years of constructive income progress — and this contains double-digit jumps in all however two of these years. The final two years have been notably noteworthy. Income rose 11% in 2020, a tough yr for many auto retailers. Conventional automotive gross sales faltered throughout the pandemic, however the disaster supplied a lift for the RV market as people realized {that a} house on wheels was the most secure option to journey throughout the COVID-19 disaster.

Final yr was much more spectacular, with income progress of 27% to hit $6.9 billion. Many of the top-line progress wasn’t from Tenting World promoting extra RVs, though it did promote almost 10% greater than it did in 2020. The actual driver right here was hovering costs for brand spanking new and notably used RVs. Margins skyrocketed, and web revenue almost doubled to $6.07 a share. Did I point out that Tenting World is buying and selling for simply six instances earnings?

The brand new yr might be tougher with out the distinctive tailwinds of 2020 and 2021. Analysts see a small bump in income and a step again on the underside line for all of 2022. This is the place Tenting World’s formidable payout technique comes into play. Buffett is not essentially excessive on dividend investing, and Berkshire Hathaway itself would not declare distributions. He can nonetheless profit from Tenting World’s aggressiveness in returning cash to its shareholders.

Tenting World greater than doubled its common quarterly dividend final yr to $0.50 a share — or $2 a share on an annualized foundation. Two weeks in the past, it introduced one other 25% enhance, so it is on observe to ship $2.50 per share in distributions this yr. This interprets to a juicy 7.8% present yield. Tenting World has additionally delivered a pair of bigger particular dividends twice over the previous 5 years. Briefly, Tenting World is a rewarding funding in many various methods. It checks off the worth bins of most revenue buyers, and it occurs to be in a market that Berkshire Hathaway already is aware of all too effectively.

Battle decision

The one velocity bump right here is that Buffett could already be in too deep within the RV market. Would proudly owning a diversified RV superstore idea — both outright or as a small shareholder — be an issue for a corporation that is already an RV producer? Tenting World additionally owns the Good Sam Membership, the equal of the American Vehicle Affiliation (AAA) for RVs with greater than 2 million card-carrying members. Will proudly owning an RV insurer be a battle of curiosity for Good Sam Membership?

I do not assume so, and if something, the synergies and alternatives are much more compelling. Buffett’s already a professional relating to investing in RV stocks. Including Tenting World as at the very least one of many shares in Berkshire Hathaway’s extensively adopted portfolio is a good suggestion on wheels.

10 shares we like higher than Tenting World Holdings
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Rick Munarriz owns Tenting World Holdings. The Motley Idiot owns and recommends Berkshire Hathaway (B shares). The Motley Idiot recommends Tenting World Holdings and recommends the next choices: lengthy January 2023 $200 calls on Berkshire Hathaway (B shares), quick January 2023 $200 places on Berkshire Hathaway (B shares), quick January 2023 $265 calls on Berkshire Hathaway (B shares), and quick March 2022 $32 places on Tenting World Holdings. The Motley Idiot has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the writer and don’t essentially replicate these of Nasdaq, Inc.

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