Harley-Davidson Inc (HOG, Financial) recently experienced a daily loss of -2.95%, culminating in a 3-month loss of -3.02%. Despite these losses, the company's Earnings Per Share (EPS) (EPS) stand at a robust 5.32. This raises the question: is the stock modestly undervalued? This article aims to answer that question by providing a comprehensive valuation analysis of Harley-Davidson (HOG).
Company Overview
Harley-Davidson is a global leader in the manufacture of heavyweight motorcycles, parts, and accessories. The company has a rich history and has consistently captured about half of all heavyweight domestic retail motorcycle registrations. Currently, Harley-Davidson is making strides into the adventure touring market with its Pan America model and into electric vehicles with the LiveWire brand. Despite a stock price of $32.54, the company's estimated fair value (GF Value) is $44.2, suggesting that the stock might be undervalued.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value. It takes into account historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line offers a snapshot of the stock's ideal fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Based on this analysis, Harley-Davidson (HOG, Financial) appears to be modestly undervalued. With a current market cap of $4.60 billion, the long-term return of its stock is likely to be higher than its business growth.
Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss. To avoid this, investors must review a company's financial strength before purchasing shares. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. Harley-Davidson's cash-to-debt ratio is 0.21, which ranks worse than 73.78% of companies in the Vehicles & Parts industry. However, its overall financial strength is rated 5 out of 10, indicating fair financial health.
Profitability and Growth
Investing in profitable companies is generally less risky, especially those with consistent profitability over the long term. Harley-Davidson's profitability rank is 8 out of 10, indicating strong profitability. The company's operating margin is 15.49%, ranking better than 91.59% of companies in the Vehicles & Parts industry.
Growth is a crucial factor in a company's valuation. The 3-year average annual revenue growth of Harley-Davidson is 4.3%, which ranks worse than 55.71% of companies in the industry. However, its 3-year average EBITDA growth rate is 12.8%, ranking better than 60.85% of companies in the industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Harley-Davidson's ROIC was 7.76, while its WACC came in at 4.67.
Conclusion
In conclusion, Harley-Davidson's stock appears to be modestly undervalued. The company's financial condition is fair, its profitability is strong, and its growth ranks better than 60.85% of companies in the Vehicles & Parts industry. To learn more about Harley-Davidson stock, you can check out its 30-Year Financials here.
To find high-quality companies that may deliver above-average returns, check out the GuruFocus High Quality Low Capex Screener.
