‘Murica

I will be buying one of those classy Harley-Davidson…no not the actual cruiser…the stock of course!

Harley Davidson (HOG) – the maker of Harley-Davidson motorcycles is grossly misunderstood, undervalued, and underappreciated.

Misunderstood

Mr. Market misunderstood the key driver of the luxury motorcycle business.

It is not the international-sales, emerging-market or non-white-but-woman-black-Latino-ethnicity-driven growth BUT it is the competitive moat built around a superior brand that will drive the long-awaited growth.

And HOG possesses the best-quality brand that the motorcycle business has ever seen.

In fact, none of the world motorcycle brand has come close to HOG’s longevity (114 years in existence): Ducati (91 years), Kawasaki (54 years), Honda (68 years), Suzuki (107 years) and BMW motorcycle (94 years).

Better yet HOG is the ONLY brand that represents the iconic American motorcycle in the world.

Undervalued

At a 10x P/FCF and a 12x P/E the company is “priced like a distressed retailer” – Oakmark Fund, or maybe a bit relational to me, a struggling Vietnamese sugar producer.

Underappreciated

Mr Market is underappreciating some important facts:

  • A near $1bn dollar parts-and-accessories business that proves the strength of the switching cost enjoyed by HOG cruisers and tourers which emphasize more on customisation than performance exhibited in the sport bike category
  • A respectable pricing power over a period of 24 years (1993-2016): Within this period HOG increased average selling price 21 out of 24 years, from $5,000 to $11,000 per bike and only saw 5 single years where volume sold declined (of which 4 relates to the 2007-2010 financial crisis)
  • The most premium cruiser and touring motorcycles in the world are produced in only 4 HOG factories
  • HOG operates the biggest motorcycle owner site in the US – Harley Owners Group with a whopping 1m members
  • The leading and superior market share positions (HOG vs the nearest competitor): young adults (42.5% vs 13.5%), women (59.9% vs 5.5%), African-Americans (53.7% vs 7.1%), Hispanics (54.2% vs 7.6%) and Men 35+ (55.7% vs 5.8%).

In 5-year time it will be either me over-appreciating all of these seem-to-be-underappreciated facts or that HOG will be my second wonderful-company-bought-at-a-wonderful-price stock purchase I will have ever committed to.

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