Harley-Davidson (NYSE: HOG) - American motorcycle manufacturer. The iconic brand was born in 1903 in a small barn in Milwaukee., and after more than 100 years, he is well known to people in all corners of the planet and has become a symbol not only of bike culture, but also an integral part of the American dream. The company's shares have been traded on the New York Stock Exchange since 1986..
What he earns
The company develops and sells motorcycles, as well as all related products and services for motorcycles: spare parts, equipment and accessories, service. The lineup consists of cruisers, Sports, Tourist, off-road motorcycles and trikes. Classic motorcycle technologies are complemented by modern ones: Harley-Davidson has its own electric motorcycle and even electric bikes.
What's wrong
Financial dependence. Coefficient debt / equity, which reflects the ratio of liabilities to equity, Is 3,8. The optimal value is usually between 1 to 2, and at large values, the business begins to lose financial stability, it becomes more difficult for management to attract new loans. A plus, according to a report by Simply Wall Street, operating cash flow covers the company's debt only for 13,4%, which also looks weak.
Luxuries, inflation and covid. High inflation around the world and a key rate hike cycle, which is coming to the US, reorient consumers to a savings model, in which the priority of buying luxury goods will be lower and lower. When prices are high, loans are becoming more expensive, and interest rates on bank deposits are rising, significantly fewer people will decide to buy a motorcycle for 20-30 thousand dollars, which can be spent on essential goods or deposited in the bank at interest. Yes, and coronavirus restrictions did not bypass the issuer: the number of dealerships decreased from 1569 in 2019 to 1379 in 2020.
Revenue and profits grow weakly. Do not inspire investors with optimism and forecasts of key business indicators Harley-Davidson: analysts predict annual revenue and profit growth of the company well below not only the automotive sector, but also the broader US market.
What good
Strong brand. Almost 120 years of history of the most famous motorcycle brand bears fruit, and now the name Harley-Davidson sounds synonymous with a cool bike. Against this background, the company competently builds friendly relations with customers and maintains its glory.: there is an official secondary market, tattoos with the brand logo have become an obvious thing for owners of equipment, and the toughest guys in Pulp Fiction, "Terminator" and other famous films are invariably driven by different models of shiny chrome "Harleys".
Public development strategy. In February 2021 The company announced a five-year plan for The Hardwire, which is focused on increasing profits and doubling earnings per share, strengthening the presence and consolidation of leadership in the market of electric motorcycles, as well as an increase in the share of employees among shareholders. A clear and open development strategy looks favorable in the eyes of investors and increases their level of confidence in the issuer.
underrated. According to Simply Wall Street, Harley-Davidson shares are still undervalued and trading at a discount of over 20% regarding their objective value. Coefficient P / E of the company is 10,5, which is lower than in 14 the average for the automotive sector and the market average of 16.5 for the US.
What's the bottom line?
Harley-Davidson is a typical representative of the cyclical sector, with its advantages and disadvantages. A strong brand and leadership in the motorcycle industry plays into the hands of the company, backed by a large number of loyal customers around the world. But the almost fourfold excess of the company's liabilities over its capital and a weak growth forecast do not yet allow us to confidently call the issuer's shares a good choice for investment..
