Since May 2024, Winnebago has been in a holding pattern, floating around $58.40. The stock also fell short of the S&P 500’s 14.2% gain during that period.
Is there a buying opportunity in Winnebago, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.We're cautious about Winnebago. Here are three reasons why there are better opportunities than WGO and a stock we'd rather own.
Why Do We Think Winnebago Will Underperform?
Created to provide high-quality, affordable RVs to the post-war American family, Winnebago (NYSE:WGO) is a manufacturer of recreational vehicles, providing a range of motorhomes, travel trailers, and fifth-wheel products for outdoor and adventure lifestyles.
1. Revenue Tumbling Downwards
Long-term growth is the most important, but within industrials, a stretched historical view may miss new industry trends or demand cycles. Winnebago’s recent history marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 22.6% over the last two years. 
2. Free Cash Flow Margin Dropping
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, Winnebago’s margin dropped by 6.8 percentage points over the last five years. Winnebago’s five-year free cash flow profile was compelling, but shareholders are surely hoping for its trend to reverse. Continued declines could signal that the business is becoming more capital-intensive. Its free cash flow margin for the trailing 12 months was 3.3%.
3. New Investments Fail to Bear Fruit as ROIC Declines
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).
We typically prefer to invest in companies with high returns because it means they have viable business models, but the trend in a company’s ROIC is often what surprises the market and moves the stock price. Winnebago’s ROIC has decreased over the last few years. We like what management has done in the past but are concerned its ROIC is declining, perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
Winnebago doesn’t pass our quality test. With its shares underperforming the market lately, the stock trades at 11x forward price-to-earnings (or $58.40 per share). This valuation multiple is fair, but we don’t have much confidence in the company. There are better stocks to buy right now. We’d recommend looking at Costco, one of Charlie Munger’s all-time favorite businesses.
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