Harley-Davidson Inc (HOG, Financial), a leading manufacturer of heavyweight motorcycles globally, recently recorded a daily gain of 3.64%, with a 3-month gain of 2.2%. The company's Earnings Per Share (EPS) stands at 5.32. Is the stock modestly undervalued? This article delves into the valuation analysis of Harley-Davidson, exploring its intrinsic value and financial health to provide an informed perspective for potential investors.
Company Introduction
Harley-Davidson Inc (HOG, Financial) is renowned for its custom, cruiser, and touring motorcycles. It also offers a complete line of motorcycle parts, accessories, riding gear, and apparel. Besides, the company provides wholesale financing to dealers and retail financing and insurance brokerage services to customers through Harley-Davidson Financial Services. Despite capturing about half of all heavyweight domestic retail motorcycle registrations historically, the company conceded this metric in 2020 as it repositioned the business and has yet to restore it.
Summarizing GF Value
The GF Value is a proprietary estimation of a stock's fair value, calculated based on historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. Essentially, the GF Value Line represents the fair value at which the stock should ideally be traded.
Currently, Harley-Davidson (HOG, Financial) appears to be modestly undervalued according to the GF Value estimation. The company's stock price is $34.74 per share, giving it a market cap of $4.90 billion. Therefore, it is likely that the long-term return of its stock will be higher than its business growth.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it is essential to review a company's financial strength before deciding to buy shares. Harley-Davidson has a cash-to-debt ratio of 0.21, which ranks worse than 73.66% of 1211 companies in the Vehicles & Parts industry. Based on this, GuruFocus ranks Harley-Davidson's financial strength as 5 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Harley-Davidson has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $6 billion and Earnings Per Share (EPS) of $5.32. Its operating margin is 15.49%, which ranks better than 91.52% of 1226 companies in the Vehicles & Parts industry. Overall, the profitability of Harley-Davidson is ranked 8 out of 10, which indicates strong profitability.
Growth is a crucial factor in the valuation of a company. Harley-Davidson's 3-year average revenue growth rate is worse than 55.88% of 1181 companies in the Vehicles & Parts industry. However, Harley-Davidson's 3-year average EBITDA growth rate is 12.8%, which ranks better than 60.98% of 1056 companies in the Vehicles & Parts industry.
ROIC vs WACC
Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Harley-Davidson's ROIC is 7.76 while its WACC came in at 4.67.
Conclusion
In conclusion, the stock of Harley-Davidson (HOG, Financial) appears to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 60.98% of 1056 companies in the Vehicles & Parts industry. To learn more about Harley-Davidson stock, check out its 30-Year Financials here.
To find out the high-quality companies that may deliver above-average returns, please check out the GuruFocus High Quality Low Capex Screener.
