Harley-Davidson

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Wall Street, usually slow to ditch a hot ride, spotted the potential for the wheels to come off fairly early with motorcycle-maker Harley-Davidson. As house prices cracked, pessimism abounded about a product that is essentially a luxury good for upper-middle class, middle-aged American men – one costing as much as an entry-level luxury car. Quarterly earnings confirmed the trend. Revenues sank nearly 8 per cent versus 12 months ago and earnings per share fell by one third. Last year was the first time sales declined since Harley went public in 1986.

But with its share price down by two-thirds since the beginning of 2007 – the lowest level in nearly a decade – concerns about Harley’s future seem overdone. At eight times prospective earnings, the price no longer extrapolates the torquey pace of growth that saw unit sales double and revenues triple over the past decade. A

n admirable focus on profitability and a firm grip on inventory also are cause for optimism. Harley’s financing arm is a source of mild concern but the manufacturing business is far healthier than those of four-wheeled vehicles in Detroit. If there were a need to conserve cash, annualised dividends and buybacks combined amount to about $475m, or about half of last year’s net income. Lost market share this year to Japanese manufacturers such as Honda says more about high petrol prices than customer loyalty.

Since the early 1980s, when its bikes were referred to pejoratively as “Hardly Ableson”, the brand’s value has risen steadily. The only problem is that loyal buyers are no longer rebels without a cause. Typically males in their late 40s, with half having owned a Harley before, they are being slowly augmented by international buyers. The recession will hurt but this 105-year-old American icon is selling for a bargain and still has plenty of road ahead.

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