Harley-Davidson (HOG - Get Rating) is up 20% over the past year. Though people are spending more time indoors than outside, investors are flocking to HOG, assuming its motorcycles, financial services, and riding-related products will continue to sell at a brisk pace.

The automotive industry as a whole had a difficult 2020, primarily due to the pandemic. However, people are looking for any reason to get outside, including riding a motorcycle. This is one of the many reasons why more and more investors are flocking to HOG.

Below, I provide an in-depth look at HOG to help investors predict whether the stock’s bull run will continue or if it will fizzle out at some point in the quarters ahead.

HOG’s Business is Timeless

Most people are unaware that HOG has three revenue streams, including motorcycles, motorcycle-related products, and financial services. Some futurists insist motorcycles will grow in popularity as time progresses as they require minimal fuel for operation, are affordable, take up little space and pollute less than regular automobiles. However, this bullish prediction for HOG and the motorcycle industry fails to account for the fact that the average person is unwilling to learn how to ride a motorcycle.

HOG’s business may gradually expand as we shift away from large gas-guzzling vehicles to more diminutive and greener transportation modes. Yet, that transition is likely to take years or even a decade or longer. Thankfully, HOG makes money outside of its motorcycles. The company also sells parts, merchandise, accessories, and other related services. About 15% of HOG revenue stems from its financial services segment. In other words, HOG is sufficiently diversified considering its reasonably narrow niche.

HOG by the Numbers

HOG was trading at $30 merely six months ago. The stock dipped below $25 in October and has been on the upswing ever since. HOG is currently trading a mere $2 away from its 52-week high of $43.47. However, HOG has a low forward P/E ratio of 14.72, meaning it is likely undervalued even though it is rapidly approaching its 52-week high. 

Though HOG is not a tech stock, plenty of other auto industry stocks trade at forward P/E ratios above 20, indicating HOG might have a bull run in-store before selling pressure kicks in. Of the dozen analysts who cover HOG, five recommend buying, six advise holding, and one recommends selling.

What About HOG’s POWR Ratings?

It’s clear analysts’ opinions are mixed in regard to HOG’s future. However, the stock’s POWR Ratings are solid across the board. HOG is ranked 28th out of 53 stocks in the Auto & Manufacturers industry. The stock has an “A” grade in the Industry Rank and Trade Grade components along with a “B” grade in the Peer Grade and Buy & Hold Grade components. HOG only gained 0.19% in 2020 price, yet the stock had an impressive 13.62% return in 2019.

HOG’s Latest Developments

Check the HOG newswire, and you will find plenty of updates pertaining to the company’s business and sponsorships. HOG recently spun off its electric bike business, dubbed the Serial 1 Cycle Company. The new green bike might hit the market at some point this year. However, little is known about this e-bike, aside from HOG executives’ projections that the e-bike market will grow at a rate of 6% annual until 2025. There is also the potential for the company to completely pivot toward e-scooters while putting its e-bike on the back burner.

HOG’s turnaround plan amidst the pandemic has also drawn attention from the mainstream media. HOG sales figures show the United States has been and will continue to be HOG’s top market. However, the company will decrease its motorcycle product lineup by nearly one-third moving forward. In other words, HOG is zeroing in on its primary strengths to offset 15 straight quarters of declining sales. Perhaps what matters most is HOG executives’ commitment to manufacturing elite electric scooters and bikes. Only time will tell whether this focus on green riding proves as profitable as expected across the long haul.

The Verdict

Investors should not feel even the slightest tinge of guilt overlooking HOG’s worrisome sales figures, choosing instead to focus on the positive. The company’s ongoing restructuring efforts are reducing costs while bolstering net profits by nearly 40% in the most recent financial quarter. 

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HOG shares were trading at $41.11 per share on Wednesday morning, down $0.17 (-0.41%). Year-to-date, HOG has gained 12.02%, versus a 0.98% rise in the benchmark S&P 500 index during the same period.

About the Author: Patrick Ryan

Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management. More...

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