Chance That Harley-Davidson Is Back In Gear?
Harley-Davidson’s stock (NYSE: HOG) is still down nearly 45% this year, but last week was different. It crawled up more than 10% in the last 5 trading days, outperforming the broader market which moved up a little more than 4.4%. While an interesting development, does it mean a buying opportunity? Or is this merely a temporary short term move? Turns out, some returns may be in store over the next few months, but long-term growth prospects are questionable. How do we know this? We look at the stock pattern as well as underlying fundamentals. Our AI engine analyzes past patterns in stock movements to predict near term behavior for a given level of movement in the recent period, and suggests nearly a 25% probability of Harley-Davidson moving up another 10% over the next 21 trading days. However, over the next 3 months, the chances of a 10% rebound are at a significant 40%. Compared to this, the probability of moving down by -10% over the next 3 months is just 20%. This indicates that Harley-Davidson is 2x likely to move up than down during this period. Our detailed dashboard highlights the chances of Harley-Davidson’ stock rising or dropping and should help you understand near-term return probabilities for different levels of movements.
But looking at the underlying fundamentals, we conclude that Harley-Davidson is not a great long-term bet. Our dashboard Big Movers: Harley-Davidson Moved 10.4% – What Next? lays this out.
Let’s first look at how Harley-Davidson’s multiple has moved. The company’s stock price decreased -37.8% this year, from $36.65 to $22.78, before moving 10.4% last week, and ending at $25.16. This means that at the beginning of this year, Harley-Davidson’s trailing 12 month P/S ratio was 1.07. This figure fell -27.8% to 0.78, before ending at 0.86. Compared to the year-beginning value, the company’s multiple is still 20% lower. So the stock is cheaper now, but does that mean you should buy it? For that we also need to look at the underlying growth and profitability.
Harley-Davidson’s revenue decreased -5.1% from $5,647 Mil in 2017 to $5,362 Mil in 2019. For the last 12 months, this figure stood at $4,508 Mil, implying a further decrease of -15.9% over 2019 numbers. In addition, net margin has fallen -14.5% from 9.2% in 2017 to 7.9% in 2019, and for the last 12 months, the figure stood at 1.72%. That’s not a picture that an investor would like to see. It is no wonder that the stock price has decreased -21% between 2017 and 2019, and has decreased -45% between 2017 and now.
Taking both perspectives together, it appears that while it may be a reasonable near term bet, Harley-Davidson does not seem to be a great long-term investment at this point. There are better alternatives. For instance, here’s a high quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.
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