Markets
THO

The Recreational Vehicle Industry: Investing Essentials

Source: Recreational Vehicle Industry Association.

The retail value of the approximately 286,000 RVs shipped in 2012, the last year for which full numbers are available, was about $10.84 billion, according to the RVIA.

How does the recreational vehicle industry work?

Once upon a time, the RV industry had no dominant player. Instead, a long list of small companies marketed their products and made steady profits.

But like many other industries, a wave of consolidation has resulted in a few key players, each of which controls several long-lived brands.

Indiana-based Thor Industries owns the famous Airstream brand, as well as Dutchmen, Crossroads RV, Keystone, the Thor motor home brand, and several others. Thor posted net income of $152.9 million in fiscal year 2013 on revenues of $3.2 billion.

In addition to its famous namesake brand, Winnebago owns the Itasca motor home and Sunny Brook trailer brands, as well as MetroLink, a line of small buses. In fiscal year ended 2013, Winnebago posted net income of $32.0 million on revenues of $803.2 million.

Other players include privately held Allied Specialty Vehicles, which owns several motor home brands (including Fleetwood and Monaco) as well as a long list of fire truck, bus, and commercial vehicle brands; Jayco, which has expanded beyond its pop-up trailers into premium towables and motor homes; and Forest River, a Berkshire Hathaway company that controls the Coachmen and Dynamax RV brands, among others.

What drives the recreational vehicle industry?

Like the auto industry, the recreational-vehicle industry is cyclical -- sales and profits tend to follow economic cycles closely.

And while RV purchases are more "lifestyle" than necessity for most, RV sales tend to follow auto sales fairly closely. There's a good reason for that: Both are driven to some extent by consumers' willing to spend, and by the availability of financing.

Sources: RVIA, .

Sources: RVIA, Automotive News .

But despite the outsized prices on the most luxurious models, RV manufacturers' profit margins are fairly slim, similar to those seen among automakers. Winnebago's pre-tax profit margin was 6.6% in the most recent quarter, while rival Thor Industries did somewhat better, but only somewhat, with a 7.9% pre-tax margin.

And RVs remain popular. While sales haven't quite recovered to their pre-recession peak, a lot of people own RVs. The RVIA cites a 2011 study showing that about 8.5% of American households owned an RV, with the fastest growth happening in the 35-54 age demographic.

What are the investing opportunities in the recreational vehicleindustry?

For investors interested in a "pure play" in the RV space, both Thor and Winnebago offer intriguing opportunities. Both are solidly profitable, with well-recognized brand names and a growing presence in the higher-margin premium tiers of the business. Shares of both companies have enjoyed a solid run since the trough of the last recession but have fallen back a bit recently. Thor pays a small dividend; Winnebago does not.

But investors tempted to bet on RVs should keep in mind that, like the auto business, RVs are a cyclical industry with high fixed costs -- but unlike autos, which are a necessity for many, RVs are a genuinely discretionary purchase for most. Share prices of these companies will be very vulnerable to changes in the economic winds.

Warren Buffett's worst automotive nightmare (Hint: It's not Tesla Motors!)

A major technological shift is happening in the automotive industry. Most people are skeptical about its impact. Warren Buffett isn't one of them. He recently called it a "real threat" to one of his favorite businesses. An executive at Ford called the technology "fantastic." The beauty for investors is that there is an easy way to ride this megatrend. Click here to access our exclusive report on this stock.

The article The Recreational Vehicle Industry: Investing Essentials originally appeared on Fool.com.

John Rosevear owns shares of Ford. The Motley Fool recommends and owns shares of Berkshire Hathaway, Ford, and Tesla Motors. Try any of our Foolish newsletter services free for 30 days . We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

THO WGO

Other Topics

Stocks

Latest Markets Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More