When you look at stocks with strong catalysts to deliver market-thumping returns, it’s easy to lean on past performance. Hot stocks often stay hot.
As in investor you can get strong vibes from companies that are vibing with Wall Street. I want to go in a different direction with this list of out-of-favor stocks that are potential skyrocketing candidates.
Camping World (NYSE: CWH), Nextdoor Holdings (NYSE: KIND), and Huya (NYSE: HUYA) aren’t getting a lot of love from investors these days. Camping World and Huya are essentially where they were at the start of this year, and Nextdoor is trading sharply lower in 2023. You may not be excited now, but let’s see if you feel that way by the end of this tribute to three forgotten stocks that could be big winners.
Shares of Camping World have started to recover from the three-year lows they hit last month. A blowout quarter earlier this month has started to turn sentiment around, but let’s start this road trip a couple of years ago, when the company was a market darling.
Camping World is the undisputed top dog among retailers selling recreational vehicles, along with related accessories and services. It operates the Good Sam Club, which is essentially the equivalent of AAA for RV owners.
RVs have been growing in popularity over time, but the industry got a boost in mid-2020 when the pandemic turned a lot of people into outdoor enthusiasts. With many forms of conventional travel either shut down or considered dangerous, folks with the means to do so entered the RV market. Demand would go on to outstrip supply, and that helped Camping World even more as the used RVs it also sells soared in value.
A lot of things started to go wrong after that. Prices for new and used RVs would eventually fall as supply wrestled back the rope from the demand camp. Gas prices spiked, making it more expensive to have a home on wheels. Then, more mainstream travel outlets recovered. Companies began calling employees back to work, nipping some dreams of traveling the country as a remote worker in the bud.
Revenue has declined year over year for five consecutive quarters. Net income has fallen sharply for seven straight quarters. Camping World’s juicy dividend was also cut significantly this summer.
Now let’s start driving in the direction of the sun. Camping World’s third-quarter adjusted profit of $0.39 a share was roughly double what analysts were expecting. The 7% decline in revenue was the most tame dip over the past year.
Analysts also see a return to top- and bottom-line growth next year. The stock is trading for less than 15x next year’s projected earnings and less than 11x the following year’s target. A lot can go wrong, but that also means that a lot can go right for the bellwether of RV stocks.
If you’re a regular in the online world, there’s a fair chance that you’ve stumbled across Nextdoor at some point. There were 40.4 million weekly active users in the hyperlocal online community in its latest quarter discussing everything from lost pets to shady service providers. This is basically a third of U.S. households that are keeping weekly tabs on the platform — but it doesn’t mean that it’s a booming business.
Monetization has always been the rub for Nextdoor. It’s a free ad-supported outpost, but how do you get marketers excited about promoting their offerings to folks trading barbs on local politics or complaining about loud neighbors?
The growth metrics are also uninspiring. Weekly active users are 6% higher over the past year, but the platform has suffered back-to-back quarters of sequential declines. Revenue rose a mere 4% in its latest quarter, and net losses have been widening sequentially over the past year.
This isn’t pretty, but let’s get to the deep value in Nextdoor stock. The platform may be a couple of years away from profitability, but it has time to crack the code. Flush with liquidity from hitting the market as a special purpose acquisition company, or SPAC for short, the company has a net cash position that drops its $632 million market cap to an enterprise value of $160 million.
This is a real business, and its enterprise value is just 0.7x the record $214 million it should generate in revenue this year. With average revenue per user at its highest point in a year, Nextdoor could start growing its audience again if the future is brighter than its stock chart.
If Nextdoor is trading for barely more than the cash on its balance sheet, Huya takes things to a whole different level. The Chinese streaming platform for video game enthusiasts has a $923 million market cap but almost $1.2 billion in cash on its balance sheet. It has a negative enterprise value of $237 million. Yes, Huya is trading for less than its liquidity.
There are some good reasons for investors to steer clear of Huya. First, it’s a Chinese growth stock. Its business revolves around young gamers, a niche that has been in the regulatory crosshairs of the populous nation for years.
Second, Huya’s business has been fading. Revenue has declined sequentially for eight consecutive quarters, cut by more than half in that time.
The good news is that most stocks fetching negative enterprise value are losing money, but Huya was consistently profitable through 2021. Last year was awful on the bottom line, but Huya has been profitable in each of this year’s first three quarters, despite the sinking top line. You shouldn’t be able to buy Huya for less than free at this point.
10 stocks we like better than Camping World
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Rick Munarriz has positions in Camping World, HUYA, and Nextdoor. The Motley Fool has positions in and recommends Nextdoor. The Motley Fool recommends Camping World. The Motley Fool has a disclosure policy.
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