Expensive Bike, Cheap Stock?
Harley-Davidson (HDI) is a name popular not only in America's Main Street, but also on the Wall Street. It is popular as an investment because of its simple business model, well-known brand name, strong profitability, and steady growth. Its stock recently dropped from 60 to 40s on forecast of slower growth. The company guided a growth rate of mid-single-digit for the next year, down from the historical high-single-digit to teens. Is it a good value? Let's be an informative shopper:
|Harley-Davidson (HDI): Market Capitalization $14 Billion (6/16)|
|Net Income ($Million)||890||761||580||438||347|
|Owner's Earning ($Million)||890||730||432|
|# Of Shares (Million)||297||304||305||306||307|
|Shareholders' Equity ($Million)||3,218||2,958||2,233||1,756||1,406|
|Long Term Finance Debt ($Million)||800||670||380||380||355|
|Market Share of Heavyweight Motocycle|
|Unit Shipment (Thousand)||327||301||275|
- Growth in market share in existing markets. Competition is fierce both domestically and internationally. Based on historical market share numbers, it is highly uncertain whether HDI can steadily improve market share at a significant pace.
- Population growth of HDI's main customer base. According to HDI's annual report, the average U.S. purchaser of a new Harley-Davidson motorcycle is a married male in his mid-forties (over two-thirds of purchasers are between the ages of 35 and 54), with a median household income of approximately $81,400. Just based on my casual observation, I'd say most of them are caucasian. What is the population growth in this segment over the next decade? Probably not high, given that the baby boom generation has mostly passed this stage of their lives.
- Growth in new markets, such as China, India. It is very uncertain how much of the population in these new markets will pay the price of a car for a motocycle mainly for its prestige instead of practicality. HDI's international sales accounts for 18%, 18% and 17% of the total motorcycle sales in 2004, 2003, and 2002, reflecting the fact its international growth has been in line with its domestic growth.
- Continued devaluation of U.S. dollar.
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Sheldon Shi, Ph.D., editor of Buffetteer.com, a site for intelligent investors.