Harley Davidson (HOG) has continued it's rather rough run over the past year, down about 25%, and is also trading near levels not seen since 2010. That does not tell the whole story though, as the company has been buying back shares at a rapid clip, reducing share count by nearly 33% since 2010.
So, while the current stock price is at 2010 levels, the market cap has fallen given the reduction in shares. Last July, the name hit my radar, trading in the $44 range, and at 12.5x forward earnings at the time. But I thought it my get a bit cheaper, against the backdrop of a difficult sales environment, and with the specter of European tariffs looming large.
It has indeed gotten cheaper, now trading for about $35, and just over 9x next year's consensus estimates. It is priced as a company in decline, and it is true that it is not the growth story it once was. Changing consumer preferences have made the name a bit less iconic to newer generations, who perhaps are not getting HOG tattoos at the same clip as prior generations.
Currently yielding 4.3%, the company has continued to increase the dividend, although the rate of increase has slowed in recent years. The current $0.375 dividend, raised in March, reflected a 1.3% increase. However, the stock buybacks have continued at a steady pace. Between the first quarters of 2018 and 2019, HOG reduced shares outstanding by 5.5%. I am often a fan of the combination of dividend increases and share buybacks, but in HOG's case, one could argue that the buybacks have not been beneficial, given the higher prices paid over the years for a stock that has been in decline.
One of the dangers of being a patient value investor is that sometimes you can be too stringent and wait a bit too long for a stock to meet your criteria. I look back at Starbucks (SBUX) one year ago, on the precipice at the time of the transition from growth to value, trading at 21x forward earnings. Not quite cheap enough for me, I wanted to see shares pummeled all the way toward a 15x multiple. It was wishful thinking that never happened. Shares quickly resumed their upward climb, and are up 65% over the past year.
However, in HOG's case, I believe that I can continue to be patient, and nibble from time to time. Motorcycles ain't cups of coffee, and it may take quite a while to turn this ship around, if that can indeed be done.
