Harley Davidson is a great, well known brand. But as one of my old professors used to say "a good product, and a good company, doesn’t necessarily make for a good stock."
Despite it’s brand image, for the last 2 decades things have been changing at Harley. Half of revenues now come from brand merchandise (like jackets) rather than motorcycles. The average age of its customers has kept rising, until now its over 50. Its new product introduction has been between anemic and nonexistent.
No one has done a better job of hiding an inherently no-growth story better than Harley Davidson. It has raised prices, faked shortages and found more ways to Defend and Extend its brand as it has done almost nothing to bring in a new generation of customers. Its big effort to move forward was the launch of the V-Rod 3 years ago with an engine, no joke, made by Porsche. Unfortunately, Harley’s dealers bad-mouthed the machine and wouldn’t sell it as they continued to stay Locked in to the old business (and the old-fashioned "hogs"). And Harley knuckled under, downplaying the new bike to appease these dealers. And a new generation of customers, to whom the new bike appealed, continued going to Honda and Yamaha.
Harley has had a P/E multiple of 25. Recently it has fallen to 14. Some folks think this might make Harley a value. I’d say that given the Lock-in, and the complete capitulation to Defend & Extend management at Harley, they have been merrily floating along the Flats not realizing how close they were to the Swamp. Fourteen might be a very high P/E once the market realizes how few 50 year olds are left looking for a $25,000 motorcycle based on 30 year old technology.
Interestingly, the name has survived. Years ago when the company was actually managed by the Harleys and the Davidsons, we did a study for them on the sports type snowmobile. The response to our recommendation was “we only have warm weather distribution.” Talk about lock-in!
William Brennen
Brennen Consultants, Inc.