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2-Star Stocks Poised to Plunge: Harley-Davidson?

Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, motorcycle specialist Harley-Davidson (NYSE: HOG  ) has received a distressing two-star ranking.

With that in mind, let's take a closer look at Harley's business and see what CAPS investors are saying about the stock right now.

Harley facts

Headquarters (Founded) Milwaukee (1903)
Market Cap $9.19 billion
Industry Motorcycle manufacturers
Trailing-12-Month Revenue $5.21 billion

CEO Keith Wandell (since 2009)

CFO John Olin (since 2009)

Return on Equity (Average, Past 3 Years) 13.1%
Cash/Debt $1.61 billion / $5.57 billion
Dividend Yield 1.3%

Honda Motor (NYSE: HMC  )

Polaris Industries (NYSE: PII  )

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 22% of the 1,871 members who have rated Harley believe the stock will underperform the S&P 500 going forward. These bears include nckballard and SwanGreenSwan.

About a month ago, nckballard touched on Harley's seemingly unsustainable valuation: "The overall economy will see slow growth over the next several years at least. With slow growth in consumer demand for large discretionary purchases and increased competition, there is no justification for such a high P/E ratio."

Harley even sports an EV/EBITDA ratio of 12.3. That represents a premium to rivals Honda (10.7) and Polaris (10.1), as well as other recreational vehicle stocks like Winnebago Industries (NYSE: WGO  ) (9.1).

CAPS member SwanGreenSwan elaborates on the bear case:

Harley is: 1) losing market share in the USA, a sign that consumer tastes have begun to shift to quieter, less expensive and more fuel efficient toys which suggests its pricing power is waning ... 3) EPS estimates appear vulnerable to reductions. 4) its financial services arm has a poor credit underwriting history ... 6) its premium multiple is likely to evaporate on the above factors. Dangerous curves ahead of estimate and multiple reduction. Remember there is rarely just one cockroach.

What do you think about Harley, or any other stock for that matter? If you want to retire rich, you need to protect your portfolio from any undue risk. Staying away from dangerous stocks is crucial to securing your financial future, and on Motley Fool CAPS, thousands of investors are working every day to flag them. CAPS is 100% free, so get started!

Interested in another easy way to track Harley? Add it to your watchlist.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Motley Fool owns shares of Winnebago. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

Read/Post Comments (3) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 03, 2011, at 12:42 PM, 6894794 wrote:

    Ask the dealers what they think of Harley and a lot will tell you the management has changed for the worse. All it seems is they want to micro manage the dealers and control the pricing of everything. If that happens the product will suffer as the dealers will rebel and find ways around Harleys ways. Upper management does not ride or enjoy the product as previous management did so they have no clue as to what the public desires. to prove this point look at what they have on the table - old product with new problems they will not even try to fix.

  • Report this Comment On November 03, 2011, at 2:27 PM, Turfscape wrote:

    Harley is among the least understood business models with investors. Armchair quarterbacks with a bunch of opinions and few facts to back it up love to throw around the tired cliche's such as:

    1) Harley's consumer base is old and dying

    2) Young people only want sport bikes

    3) People won't spend money on expensive, unnecessary things like motorcycles anymore

    The base facts remain the same:

    -Sales are up

    -Demand is up higher than production

    -Harley is #1 in market share among young adults in the US according to a study by R.L. Polk(That's's a young person's product)

    -Harley has increased market share among Women, African-Americans, Youth and Hispanics over the past three years

    -Manufacturing changes, consolidations, contract negotiations are all wrapped up...and only now are the results starting to be seen. That's leaves the company in a good position for decreased costs accompanying higher sales.

    -Heavy focus on international expansion will fuel greater demand beyond US borders

    HOG has shown me 50% growth since June of last year. More growth is on the way, folks. Let the naysayers say nay. In the meantime, I'm going to enjoy the ride!

  • Report this Comment On November 05, 2011, at 7:07 PM, ckh2 wrote:

    I bought my first new Harley in 1975. I have had 8 Harleys in addition to 1 BMW, 3 Hondas, 1 Yamaha, etc. Harley is selling the squeal not the hog. Performance is not there and never was. All they can sell is loud and rebellious. Simply look at the new products. Harley can't win a race except against another Harley.Decibels does not equal horsepower. All other bikes have less weight, more horsepower, better mileage, and a lower price comparatively. If you're looking for a 2 wheeled tractor that unknowing chicks will gravitate to then Harley is your bike. At some point you will realize the emperor has no clothes. Don't discuss quality, handling, or performance. This is not an opinion, just simple facts. Been there, done that, not going back. My next bike will be a BMW R1200 RT. Without Harley financing bikes that should never have been sold this would have been a bad year. You can't do that forever. The bikes will come back when the payment is due. What do you do then?

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