Winnebago: Short squeeze ahead? (incl. Excel valuation model)
Bears are doubling down. But it hasn't worked well for them so far. The stock has been robust recently. The odds favor a cyclical and structural rebound for RV demand and the valuation is unambitious.
I believe there is a decent short squeeze opportunity building up for Winnebago WGO 0.00%↑. To illustrate this opportunity, I will first outline the bear case. Then I will explain why I believe that this bear case doesn’t work. The odds favor a cyclical and structural rebound in RV demand which drives upside in the stock. I have attached my valuation model where I illustrate that there is a good chance this will be a $120 stock a few years down the road. That’s 80% upside.
The opportunity is highly asymmetrical in my view as the core business is resilient and unambitiously valued, even based on cyclically depressed earnings. They have been defending profitability and market share well in this sharp RV recession. And the stock is trading at less than 10x earnings.
To take advantage of this set-up, I have entered into a Jan’25 50/80 risk reversal trade, which I will showcase at the end of this article. This gives me leveraged exposure to the right tail in a squeeze scenario at the expense that I might have to buy a solid company very cheap. I could live with that.
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The Bear Case…
In 2020 and 2021, much of the world was put on hold. Travelling abroad and gathering indoors was restricted. As a result, many people turned their eyes to camping. RV sales jumped through the roof. In the US, 600,000 units were sold in 2021, 20% more than in 2016, the previous peak year.
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