Harley-Davidson (HOG) is arguably the most iconic American motorcycle brand, recognizable globally.

Despite the great brand, there have been challenges over the years. Despite decent profits. This is why I’m neutral about the stock. (See HOG stock charts on TipRanks)

Thin Future Prospects

Harley-Davidson (NYSE:)’s future prospects seem to be thin, with the company facing multiple challenges, including decreasing shipments in domestic markets due to an aging customer base, and little to no margins to push its pricing higher.

It is evident that its revenue has been steadily declining since 2014 and hovers at almost the same level as 20 years ago.

Harley-Davidson seems to be experiencing a slowdown in motorcycle sales, even though it has seen its peak a few decades ago.

The 10-Ks of the company over the last few years show that international and U.S. shipments have decreased with no end. In 2018, 2019, and 2020, U.S. deliveries amounted to 132,400, 124,300, and 79,700.

International shipments amounted to 96,200, 89,600, and 65,500 during these years, also declining year-over-year.

Not as Cheap as It Seems

Harley-Davison is currently trading with a forward P/E of around 11.2 attached. This multiple might seem small, but it isn’t.

Profitability has stagnated along with the company’s revenues. Although net income saw a rebound in the first quarter after the pandemic was over, the net income, like total sales, has not grown as much.

Noting also that Harley-Davidson’s future success is dependent on its ability to keep its margins current, it’s worth noting. The company’s recent cost-cutting efforts have helped to recover the margins.

Margins will shrink further with long-term declining motorcycle delivery rates. The forward price of the stock at which it trades could seem misleading as Harley-Davidson’s net income is unlikely to be sustainable.

As the company gets more indebted, it will continue to do so. Harley-Davidson currently has a net debt of $6.14Billion and a concerning long-term/equity ratio (218.2%).

In the middle of the pandemic the company suspended its dividend. While it is now back at $0.15 a quarter, investors can’t be compensated by the current yield of 1.2%.

Wall Street’s Take

Turning to Wall Street, Harley-Davidson has a Hold consensus rating, based on three Buys, three Holds, and two Sells assigned in the past three months. At $46.67, the average HOG price target implies 23.6% upside potential.

Disclosure: Nikolaos Sismanis had no position at the time this article was published.

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