Personal Finance

Why You'd Have to Be Crazy to Buy Harley-Davidson Stock Right Now

Harley Davidson Hog Stock Chart Sales Motorcycles Bikes

Instead of punishing Harley-Davidson (NYSE: HOG) stock like it should have for yet another quarter of disappointing results, the market has instead bid up its shares 14% as investors ignored falling sales, weakening profits, and continued losses of industry share in favor of cost-cutting and a new engine helping to rev up a turnaround.

Harley Davidson Hog Stock Chart Sales Motorcycles Bikes

Data source: Harley-Davidson quarterly SEC filings. Chart by author.

The shipment guidance may be lower than what it started the year off believing it would ship, but it's still too high based on Harley's sales trends. There's no good reason for the company to ship so many.

Filling the dealerships with inventory

That, of course, hasn't stopped Harley-Davidson in the past. In the fourth quarter of each of the past two years, the motorcycle maker has shipped just enough bikes to dealers to make it over the low end of its guidance, even though sales didn't justify it. That it may do so again this year would not be a surprise, but it also doesn't mean investors should be bidding up the stock.

Harley Davidson Hog Stock Chart Sales Shipments Motorcycles Bikes

Data source: Harley-Davidson quarterly SEC filings. Chart by author.

Not even Harley's cost-cutting measures make it worth it. Last month, it announced it was laying off about 200 workers, with more than half of them coming from its York, Penn., facility that was refurbished a couple of years ago. That plant is also where Harley assembles its touring, Softail, CVO, and Trike models, suggesting its business in those lines isn't doing well.

Engine of growth

It might have better luck with its new Milwaukee-Eight engine that debuted on all three new 2017 motorcycles, in addition to a redesigned upgraded suspension. According to the bike maker, the new product introductions helped rev up U.S. sales in September.

Touring bike sales jumped 6% from last year to 23,295 bikes. While touring is Harley's biggest segment, or 48% of total sales, it still wasn't enough to offset the dramatic drop in cruisers and Sportsters and Streets, where sales plunged 24% and 13%, respectively. The Sportster-Street segment should be of particular concern because Harley was counting on these runabouts to drive sales. Now it appears it's counting once again on the heavy bikes, though that might not be so bad since they also tend to be more profitable.

In all, though, the exuberance the market has shown toward Harley-Davidson's results are unjustified. It might have beat analyst expectations, but that was only because the bar had been set so low. Its industry is weakening, its business is falling faster, and the competition remains pointed. Running up its stock as investors did is unwarranted, and they've just set themselves up to be disappointed later.

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Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Ford and Polaris Industries. 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 Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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