Harley is an aging brand in need of a major tune-up of its business
Harley-Davidson (NYSE: HOG) is an iconic American brand. Yet challenges surrounding it and its beloved baby boomer demographic could make investing in this stock an accident waiting to happen.
Harley-Davidson has fans so loyal that some of them tattoo the brand on themselves. Whenever you see customers who “bleed the brand,” that suggests there’s something special going on that could lead to winning investments. Harley-Davidson is one such enterprise.
But inked skin eventually sags, and Harley’s demographic is aging. The company’s core customers are middle-aged men, and it gets harder to be an easy rider with every passing year. Meanwhile, younger customers just don’t feel the same fervor for the brand.
The nasty economy has put boomers in a precarious financial position as they transition into retirement. Some companies simply cater too strongly to this weakened consumer group that may have increasing difficulty justifying discretionary purchases. With its expensive bikes, Harley-Davidson fits that description perfectly.
It’s not even a cheap stock idea right now. Its revenues and earnings have been falling steadily for several years. Over the last 12 months, sales fell 15.7 percent and earnings per share dropped 73.1 percent.
Granted, Harley has turned its business around before, such as in the 1990s. Maybe it can do it again – but it will need to reinvigorate the brand for younger people.
Ask the Fool
Q: Is a company priced at $100 per share in better shape than a company with a $30 share price? – L.L., Palmdale, Calif.
A: This is a critical concept, and the answer is no. Never examine a stock’s price in isolation. Lots of other things need to be taken into account, such as how many shares there are (many companies have millions, and others have billions), how much income the company is earning per share, and how the price relates to the company’s earnings, cash flow and other measures.
If a company is saddled with a lot of debt and its earnings have been shrinking, it’s probably not an attractive investment, no matter its price. If an outfit with a $30 or $100 stock price is growing rapidly, increasing its profit margins and gaining market share in its industry, it’s well worth considering, unless its stock price has zoomed beyond its intrinsic worth.
Remember that a $3 stock can really be worth $1, and a $100 stock might be worth $200. Investors need to do some research before drawing hasty conclusions.
Q: What kind of education and training do stockbrokers need? – P.C., Martinsville, Ind.
A: A college degree generally isn’t required, but they must pass the “Series 7” licensing examination, and sometimes Series 63 and Series 65 exams, too. The successful completion of these permits brokers to advise you, solicit business from you, and execute transactions on your behalf.
These tests don’t measure the ability to discern outstanding investments, though. Worse still, brokers don’t have to abide by the fiduciary standard, making recommendations in your best interest (though the Securities and Exchange Commission may change that soon). Instead, they just have to offer “suitable” investments.
My dumbest investment has been in penny stocks. I thought I knew what I was doing, but then found out that that market is full of liars and thieves. Corruption is rampant in the penny market. – J.S., online
The Fool responds: While Enron and other companies have shown us that corruption exists at all levels, the penny stock universe, featuring stocks trading for around $5 per share or less, is an exceptionally dangerous place to be. Con artists can manipulate penny stock prices easily, since the companies involved are small, with relatively few shares.
The online world has made it easier still, as stocks can be hyped via e-mail and elsewhere, sending share prices up sharply as naive investors pile in. Then the hyper sells his shares, before the price collapses.
You’re best off simply steering clear.
Many penny stocks are trading on promises and possibilities (oil or gold discoveries are around the corner; imminent cures for cancer), not on robust balance sheets and track records of profitability. Remember that great investments don’t go trolling for buyers.