Harley-Davidson stock is currently trading at around $32 per share, down about 38% from its pre-inflation shock high of $52 in May 2021. The stock appears to be undervalued compared to automotive major Ford, which is down 12% over the same period. Factors such as inflation and high interest rates have contributed to Harley’s underperformance, making financing more expensive for buyers of motorcycles and automobiles. The company’s Q1 2024 results were mixed, with revenues declining 3% year-over-year to $1.73 billion and earnings per share down 16% compared to last year.
Over the past three years, HOG stock has seen a decline of 15% from $35 in early January 2021 to around $30 currently, compared to a 45% increase for the S&P 500. Returns for the stock have been volatile, with gains of 3% in 2021, 10% in 2022, and a loss of 11% in 2023. In comparison, the S&P 500 returns have been 27% in 2021, -19% in 2022, and 24% in 2023, indicating underperformance by HOG in 2021 and 2023. The Trefis High Quality Portfolio, consisting of 30 stocks, has outperformed the S&P 500 each year over the same period, providing better returns with less risk.
Despite the challenges faced by Harley-Davidson, there is optimism for a recovery, with U.S. inflation easing and the Fed holding rates steady. Demand for the company’s 2024 vehicles, including Touring Motorcycles, has been relatively strong. However, there are concerns about Harley’s ability to attract the next generation of riders as its core millennial customer base ages. A detailed analysis estimates Harley Davidson’s valuation to be around $43 per share, about 30% above the current market price.
The timeline of the 2022 inflation shock shows a peak inflation level of 9%, the highest in 40 years, leading to market volatility and declines. The Fed has responded by holding rates steady and is considering rate cuts later in the year. In contrast, during the 2007-08 financial crisis, HOG stock lost almost 78% of its value but recovered by around 150% by early 2010. The S&P 500 saw a 51% decline and a 48% rally during the same period.
Harley’s revenues have fluctuated in recent years due to the impact of Covid-19 on motorcycle sales, with sales rising to $5.84 billion in 2023. Net income also improved from about $1 million in 2020 to $707 million in 2023. The company has a strong financial position with $746 million in long-term debt and over $1.5 billion in cash. With the Fed planning for rate cuts in 2024, Harley’s stock has the potential for gains in the near future. Investors can consider the Trefis Market Beating Portfolios for investment opportunities based on the current market conditions.
