I've been hearing the term "lost decade" thrown around again recently as it relates to the plight of the stock market. It's a scary term if it ends up being true, as it essentially means there will be no returns on stocks over the next 10 years. There may be some ups and downs during that time frame, but in the end, nothing gained. As much of a pessimist as I can be, I usually take those prognostications with a grain of salt.
However, there is one iconic name that has lived through a lost decade, and that may be putting it mildly. Harley-Davidson Inc. (HOG) shares are down 23% over the past 10 years, 29% over the last five years, and 15% over the past year. They have popped a bit recently, including Tuesday's 4.5% uptick, and are down 8.5% year to date.
Still very profitable, including a 12.2% net margin in 2021, the motorcycle maker has seen declining and stagnating revenue in recent years. In 2015 Harley-Davidson generated $6 billion in revenue, but it has been downhill since then, including 2021's $5.4 billion. Aside from 2020's pandemic-induced break-even year ($1.3 million in net income on $4 billion in revenue), the company has generated solid profits. However, solid margins with no revenue growth do not excite investors.
Along the way, Harley-Davidson has dramatically reduced its quarterly dividend from 38 cents a share in the first quarter of 2020 to the current 15.8 cents. But HOG has also reduced the share count via stock buybacks, from 202.7 million shares in 2015 to the current 152.8 million, a nearly 25% reduction. During the first quarter of 2022, HOG resumed its share repurchase program and bought back another 6.2 million shares. I am typically a fan of share buybacks when done correctly, especially when the company is also raising the dividend. However, I wonder what HOG's average cost has been for all the shares it has repurchased over the years...
Harley-Davidson ended its latest quarter with $1.4 billion in cash and $5.3 billion in debt, for net debt of $3.9 billion. That puts the company's enterprise value (EV) at just over $9 billion, which seems paltry on the surface, especially for a well-known brand with a symbol that folks are happy to tattoo on their bodies.
As for the future, Harley-Davidson trades at just 8x and 7x 2022 and 2023 consensus earnings estimates, respectively. The questions in the near term are whether consumers will continue to buy bikes and whether credit losses will become an issue. Some may not realize that the company does generate substantial financial services revenue (financing wholesale inventory receivables and retail consumer loans) to the tune of nearly $800 million, or 15% of total revenue, in 2021.
During Harley-Davidson's lost decade the only way to have made money on the stock was by opportunistically trading it. It has not been a good buy and hold. I remain where I've been the past several times I've looked at HOG over the years -- on the sidelines.
