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Why Shares of Harley-Davidson Inc. Are Giving Up Last Week's Gains

By Daniel Miller – Jul 5, 2016 at 11:08AM

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While shares of Harley-Davidson could spike again on additional rumors, this is speculation investors would be better off shying away from, in my opinion.

What: Shares of Harley-Davidson Inc. (HOG -0.82%), one of the world's most iconic brands and a famous motorcycle manufacturer, are giving back a chunk of last week's gains as the share price tumbles 10% Monday morning.

HOG Price Chart

HOG Price data by YCharts.

So what: Part of the reason for the stock's tumble this morning is likely the downgrade from RW Baird, which noted the valuation jump following buyout speculation. And without any comment from either Harley-Davidson or KKR & Co. (KKR -0.35%), which was the speculated interested entity, or more rumor confirmation from a reliable source, it's no surprise investors who jumped onboard Friday for a quick gain on a potential buyout are now selling their shares, thinking a deal is less likely.

Image source: Harley-Davidson.

Now what: A company going private isn't a frequent development, but Harley-Davidson's buyout rumor seemed plausible because it does have a strong balance sheet, an incredible brand, and consistent cash flow. That means it's less risky for a company wishing to buy the company and take it private, giving Harley-Davidson a chance to work on future product strategies to lure in a new and younger demographic outside of the pressure and demanding shareholders in the public eye.

For now, expect Harley-Davidson to continue giving up its gains from last week unless the market hears more solid information about the buyout. However, if the latter does happen, at BMO analyst Gerrick Johnson's estimated price of $65 per share, Harley-Davidson's shares could spike again.

Ultimately, this is the type of speculation we at The Motley Fool dissuade investors from acting on; we like to find solid businesses to invest in for the long term.

Daniel Miller has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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 Motley Fool has a disclosure policy.

Stocks Mentioned

Harley-Davidson Stock Quote
$45.34 (-0.82%) $0.38
Kkr & Stock Quote
Kkr &
$48.10 (-0.35%) $0.17

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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