The CEO Stock Purchases
Camping World Holdings (CWH) is America’s “largest retailer of RVs, RV accessories and RV-related services” according to the company’s about page. CEO Marcus Lemonis is on a major buying campaign to load up HIS RV with company stock. These CEO stock purchases are large and frequent. As a result, I want to get back into this stock.
Here is a summary of Marcus’s purchases just since August, 10, 2020 (see SEC filings for more details):
As of the last transaction, Lemonis directly owns 540,826 shares of company stock. Lemonis also indirectly owns 83,100. In other words, Lemonis ramped up his direct holdings in company stock by 23% in just under two months. This purchasing action represents a strong belief in the company. I want to participate in that.
Adding to the intrigue, Camping World Holding’s Chief Operating Office (COO) sold a large chunk of shares in the middle of the CEO’s purchases. On August 17th, Tamara Ward sold 12,073 shares at a price of $35.32 for a total take of $236,374. Ward still owns 147,500 shares. Insiders sell for many reasons, but they typically buy for one reason: an expectation of much higher prices ahead. So, I consider the CEO’s purchases much more important than the COO’s sales.
The insider purchases also came in the wake of a large post-earnings sell-off in CWH. On August 6th, Camping World Holdings reported earnings that delivered a 22.0% one-day loss for CWH. Since then, the stock has lost another 7.6%. In other words, Lemonis is frenetically scooping up shares to take advantage of a significant market discount measured from the recent highs.
CWH is struggling under resistance at its 50-day moving average (DMA), but the stock is also holding support around $28. The stock bounced from that level three times in just the last two weeks.
The Earnings Look Buyable
The transcript from the earnings conference call does not provide clues to the motivation behind the sell-off. Firstly, analysts congratulated the company on a great quarter and strong execution. Secondly, no analyst complained about any deep blemish on the results. Finally, the CEO made many strong and bullish observations about the company and the business.
For example, the CEO talked about large gains in market share, record profits, and a digital strategy that provides a competitive differentiator. I was particularly impressed with the margins the company makes from RV ancillary products and services. From the conference call:
“Our Good Sam margin business is a 75% to 80% margin business. Our service and repair business is a 70%-plus margin business, and we will build more service bays…
retail operations are a 35% to 39% margin business. Our F&I business is a significant margin business. And our lowest margin business in the entire company, in the entire industry, is the sale of a new RV. And so when you hear me talk a lot about us being agnostic to whether the customer buys new or used, we’re agnostic, because we don’t mind to say buy used. The margin is better, the service performance is better, the finance penetrations is better.
And at the end of the day, we are a data mining company that wants to take care of the customer in a 360-degree wheel by selling them roadside, and warranty and insurance, and credit card and club and accessories and toilet paper and service and collision repair and all the things that go along with it. And the spark to that is the volume of transactions that we can do with the sale of new and used RVs.”
The digital strategy is a winner as site traffic exploded: “Website activity across all brands experienced significant growth in the second quarter of 2020. Unique website user sessions were 57.6 million in the second quarter of 2020, an improvement of nearly 14 million sessions to last year. For the six months period ended June 30, 2020 user sessions grew to 94.4 million, an improvement of over 16 million sessions.”
Perhaps most importantly, Camping World Holdings saw more first-time buyers than ever in its history. That milestone represents a great signal for future growth.
I am assuming that the stock got ahead of itself pre-earnings and investors are understandably locking in some hard-earned profits.
Since I am currently bearish on the stock market, I am starting with a cautious approach in following the CEO on his stock purchases. Strong put option activity was a part of my earlier bullish thesis. With volatility on the rise in the stock market, I will grab some of that premium by selling a December $30 put option for around $6.00. That price effectively gets me in the stock for $24, CWH’s price in mid-June before the last breakout. If CWH rallies from here and never looks back, I will not complain about collecting the entire $6.00 premium. I will use future sell-offs to either sell lower strike puts and/or buy shares.
Be careful out there!
Full disclosure: no positions