Harley-Davidson (NYSE:HOG) surprised everyone in the third quarter by posting better than expected sales numbers. Motorcycle sales were still down in the U.S., and the performance was worse than the industry as a whole (though not as bad as rival Polaris Industries), so it wasn't a record to really cheer.

Still, it has given some investors hope that Harley has hit bottom -- or is very near the bottom -- and the fourth quarter will be telling in that regard. With fourth quarter results due out Jan. 28, we'll know soon enough, but here's what investors can likely expect.

Motorcyclist using a fast charge charging station for the LiveWire

Image source: Harley-Davidson.

The winter of its discontent

The fourth quarter is typically Harley-Davidson's slowest quarter for sales -- not surprising, given that motorcycle buyers typically put away thoughts of new bikes until the spring. This year's numbers shouldn't be any different, though the bike maker has in more recent periods used the quarter to boost its shipment numbers to push its guidance over the finish line.

Last year, though, Harley's outlook was appropriately dour enough that it didn't have to resort to any last minute shenanigans, but sales remain at their lowest point in at least a decade. Not even during the depths of the recession has the bike maker reported so few sales, and there's nothing to suggest that the trend will be reversing.

Every quarter save one over the last four years, Harley has posted lower sales, meaning the bar it has to get over this quarter is extremely low, just over 20,800 bikes sold. So in theory, if it is going to finally post a gain, this could be the quarter it happens. But even with the LiveWire electric motorcycle on sale, it's probably not going to happen.

Here's why the fourth quarter will be a disappointment:

  • Tariffs making Harleys more expensive
  • Production delays with the LiveWire
  • New bikes won't be available until later this year
  • Bikes still carry a hefty price tag

The ravages of the trade war

Although Harley-Davidson moved production of some of its motorcycles to its new plant in Thailand and got approval from the European Union for favorable tariff treatment on its Softail and Sportsters, it won't be until the second quarter of 2020 that it will have worked through the existing higher cost inventory, and the production it expected to begin last October will be available.

On the sales front, that means Harleys are still going to be more expensive to foreign buyers, which may result in sales falling again. International sales had fallen for three straight quarters, before briefly perking up in the third. Expect them to fall once more.

EV challenges

The LiveWire electric motorcycle began with a bit of a hiccup, as a problem found in a single bike caused Harley to shut the entire production line down for a week. While that was done out of an abundance of caution, it caused the bikes to be shipped late to dealers. They were only going to be getting very few anyway, and the resulting buzz was marred by Harley's less than fully transparent response to the issue. When the LiveWires finally showed up, the window for fall buying had mostly closed.

Harley isn't expecting to sell many to begin with (and certainly not with a $30,000 price tag). It views the electric motorcycle as its "halo" model to show what a bike company can do when it throws all the bells and whistles into a production model.

Still, a Zero Motorcycle costs about a third less, and models from other manufacturers are expected to be dramatically cheaper still. There won't be many Harley bikers looking at a LiveWire regardless.

The excitement is in future quarters

The real potential for Harley begins later this year when its Streetfighter and Adventure Touring motorcycles are released. It also has some small electrics in the works, but as with everything Harley, pricing will be key.

It looks like it's tapping into the right markets -- but pricing itself out of them thinking the Harley mystique and cachet will carry over into sectors in which it has no credibility yet with riders would be a mistake.

Still a value stock

Harley-Davidson's stock is down 5% so far in 2020, and it trades at a very cheap valuation. But the reason its shares go for just 10 times estimated earnings is because there are valid questions about whether this iconic American brand can recover. 

However, the bike maker does still generate a lot of cash, and because it trades at just 11 times the free cash flow it produces, an investor might just want to take a stab at it and enjoy the dividend that is currently yielding 4.3% annually. It may be worth it to see if this management team has learned from past mistakes and will gain traction again.