For anyone who has gotten stuck on a mountain road
behind a massive recreational vehicle, get used to it, there are a lot
more on the highway.
Recreational vehicles, ranging from bus-sized
motor homes to retro trailers, have been a boom-and-bust industry since
they first became popular in the early 1970s. Now a wave of retiring
baby boomers and a surprisingly young new fan base have sent U.S. unit sales above their housing boom peak. Shares of the two leading manufacturers of RVs,
each hit records last week.
fundamentals—fuel prices, interest rates, disposable income and
demographics—all look solid. That has the Recreation Vehicle Industry
Association projecting a further jump this year and next. Despite that,
delighted investors might want to unhitch themselves from these stocks.
When things go badly for the economy, they go very badly for RV makers.
of one-time industry leader Winnebago Industries plunged by 94% from
peak to trough in the first 1970s energy crisis and by 78% in the second
one. A lack of easy credit and consumer confidence can be just as
devastating. Shares fell 92% between their housing boom peak and housing
bust trough, while wholesale RV shipments fell by two-thirds.
an energy shock or sharp economic downturn don’t loom on the immediate
horizon, the industry isn’t quite as robust as unit sales figures
suggest. Younger “glampers” increasingly are opting for cheaper, towable vehicles, not huge, motorized ones. Leading RV retailer
reported a 14.5% increase in same-store new vehicle sales in its
third quarter, compared with a year earlier, even as the average price
of new vehicles sold fell by 1.6% because of the shift to cheaper
Given the industry’s sharp cyclicality, RV makers
really should trade more like auto manufacturers, yet the publicly
traded industry leaders—No. 2 by revenue Forest River, is a subsidiary
—have an average forward price-to-earnings ratio of 17.4 times,
almost 2½ times the average of seven auto companies, according to
FactSet. The leading dealership, Camping World Holdings, commands a 40%
premium to a basket of auto dealers, but that seems less egregious given
the fat margins it earns from services and used RV sales, compared with
For the manufacturers, though, it is about time for a rest stop.