Has Harley-Davidson’s Stock Already Priced In Recovery?
Harley-Davidson’s stock (NYSE: HOG), has gained 27% – moving from about $37 to $47 since the end of 2020. The price rose in 2021 as the company started recovering after it was hit hard due to the pandemic in 2020. In 2020 sales volume fell by 32% for the year, which caused revenue to fall by 25% y-o-y to $4.1 billion. In Q1 2021, recovery was seen in its main market i.e. North America as sales volume increased by 30% y-o-y for the region. Overall the sales volume increased by 9% y-o-y for the quarter. The recovery in volume led to revenue growth as the company posted revenue of $1.4 billion, up 10% y-o-y. At the current price of $47 we believe Harley-Davidson’s stock is in line with its potential. Our dashboard, ‘Buy or Sell Harley-Davidson Stock?‘ provides the key numbers behind our thinking, and we explain more below.
Harley-Davidson‘s revenues have fallen by 27% from $5.7 billion in 2018 to $4.1 billion in 2020. In the same period, the net income margin has fallen to 0.03% in 2020 from 9.3% in 2018 as the company suffered due to waning demand of heavy motorcycles and the Covid pandemic. The shares outstanding decreased during the same period which partially offset the RPS fall. Harley’s P/S was around 0.9x at the end of 2018 and has increased continuously. It reached 1.4x at the end of 2020 and has reached 1.7x currently.
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We expect the company to continue on its revival path post the pandemic and sales volume to recover across regions. This would lead Harley-Davidson’s revenue to rise by 31% to $5.3 billion for 2021. Further, its net income is likely to increase to $215 million, increasing its EPS figure to $1.40 in 2021, which coupled with the P/E multiple of 34.3x will lead to Harley-Davidson’s valuation of $48, which is in line with the current market price.
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