HomeMost PopularInvestingWill Harley-Davidson Stock Return To Pre-Inflation Shock Highs?

Will Harley-Davidson Stock Return To Pre-Inflation Shock Highs?

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Harley-Davidson inventory (NYSE:HOG) at the moment trades at $33.50 per share, round 36% beneath its stage of $52 seen on Might 17, 2021 (pre-inflation shock excessive), and appears undervalued. Harley noticed its inventory buying and selling at round $32 on the finish of June 2022, simply earlier than the Fed began rising charges, and stays up by roughly 6% from these ranges. Compared, the S&P 500 gained about 18% throughout this era. Harley inventory has benefited from better-than-expected Q2 revenues and easing provide chain points. 

Notably, HOG inventory had a Sharpe Ratio of -0.1 since early 2017, which is decrease than the determine of 0.6 for the S&P 500 Index over the identical interval. Evaluate this with the Sharpe of 1.2 for the Trefis Bolstered Worth portfolio. Sharpe is a measure of return per unit of danger, and high-performance portfolios can present the most effective of each worlds.

Returning to the pre-inflation shock stage implies that Harley inventory must acquire about 55% from right here. Whereas it’s attainable that the inventory might get well to these ranges, we estimate Harley Davidson valuation to be round $46 per share, about 37% above the market worth. It is because the latest uncertainty within the monetary sector has made traders involved a few potential recession. Harley’s enterprise might even see an antagonistic impression on its quantity if the U.S. financial system had been to enter recession, with clients holding again on discretionary purchases.

Our detailed evaluation of Harley-Davidson upside post-inflation shock captures developments within the firm’s inventory throughout the turbulent market situations seen over 2022 and compares these developments to the inventory’s efficiency throughout the 2008 recession.

2022 Inflation Shock

Timeline of Inflation Shock So Far:

  • 2020 – early 2021: A rise in cash provide to cushion the impression of lockdowns led to excessive demand for items; producers had been unable to match up.
  • Early 2021: Transport snarls and employee shortages from the coronavirus pandemic proceed to harm the provision
  • April 2021: Inflation charges cross 4% and enhance quickly
  • Early 2022: Vitality and meals costs spike as a result of Russian invasion of Ukraine. Fed begins its charge hike course of
  • June 2022: Inflation ranges peak at 9% – the best stage in 40 years. The S&P 500 index declined greater than 20% from peak ranges.
  • July – September 2022: Fed hikes rates of interest aggressively – leading to an preliminary restoration within the S&P 500 adopted by one other sharp decline
  • Since October 2022: Fed continues charge hike course of; bettering market sentiments assist S&P500 recoup a few of its losses.


Screenshot 2023 09 13 at 1.02.35 PM


In distinction, right here’s how HOG inventory and the broader market carried out throughout the 2007/2008 disaster.

Timeline of 2007-08 Disaster

  • 10/1/2007: Approximate pre-crisis peak in S&P 500 index
  • 9/1/2008 – 10/1/2008: Accelerated market decline comparable to Lehman chapter submitting (9/15/08)
  • 3/1/2009: Approximate bottoming out of S&P 500 index
  • 12/31/2009: Preliminary restoration to ranges earlier than accelerated decline (round 9/1/2008)

HOG and S&P 500 Efficiency Throughout 2007-08 Disaster

HOG inventory declined from practically $46 in October 2007 (pre-crisis peak) to $10 in March 2009 (because the markets bottomed out), implying that HOG inventory misplaced virtually 78% of its pre-crisis worth. It recovered from the 2008 disaster to ranges of round $25 in early 2010, rising roughly 150% between March 2009 and January 2010. The S&P 500 Index noticed a decline of 51%, falling from ranges of 1,540 in September 2007 to 757 in March 2009. It then rallied 48% between March 2009 and January 2010 to achieve ranges of 1,124.

HOG Fundamentals Over Current Years

HOG revenues declined from round $5.7 billion in 2018 to about $4 billion in 2020, as a result of impression of Covid-19 on bike gross sales. Nevertheless, gross sales rose to $5.3 billion in 2021 and to about $5.7 billion in 2022 as demand picked up and likewise as provide chain points steadily eased. Internet revenue declined from round $531 million in 2018 to simply about $1 million in 2020, though it rose to about $741 million in 2022.

Conclusion

With inflation easing and the Fed going barely straightforward on the tempo of its rate of interest hikes, market sentiment is bettering. We imagine that this might assist Harley-Davidson  (HOG) inventory to an extent.

Returns Sep 2023
MTD [1]
2023
YTD [1]
2017-23
Whole [2]
 HOG Return -1% -20% -43%
 S&P 500 Return -1% 16% 99%
 Trefis Bolstered Worth Portfolio -2% 28% 559%

[1] Month-to-date and year-to-date as of 9/13/2023
[2] Cumulative complete returns because the finish of 2016

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The views and opinions expressed herein are the views and opinions of the creator and don’t essentially replicate these of Nasdaq, Inc.

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