Harley Davidson Riding Towards a Profitable Future?

Harley Davidson HOG is as American a company as one can find. It is a company synonymous with lean, mean and powerful motorcycles, and over the past couple of years, it has strived towards once again becoming a lean, mean and profitable business.

At the beginning of 2009, Harley's stock price was trading at around $10, its lowest price in over 20 years. Since then, it has taken direct and decisive steps towards restructuring the company which has resulted in its price reaching almost $50 a share, levels not seen since the 2007 crises.

The path towards this successful change began back in mid-2009 when it sold MV Augusta. It also cut costs dramatically by reducing its workforce and renegotiating its labor agreements. Moreover, it has also outsourced processes overseas to reduce costs, for example, opening factories in Brazil and India.

The demand for these bikes is back, as seen by the near 11% increase in sales worldwide and a better than expected 12% increases in revenue announced for the previous quarter. Its market share has increased over the past few years with more than 45% of the motorcycles in US.

Probably the first image that comes to mind when you think about a Harley is old, muscular men with long hair and dense beards. But that is perception which the company is trying to change. It now has the highest market share among demographics such as African-Americans, Hispanics, women and young adults. One reason may be that it has increased its offering to 34 models from 24 at the beginning of the century, having options for various customers. Also, one can now have a customized Harley Davidson. This may prove to be highly attractive for many people.

Though much of its revenue comes from America, it also has 30% of its revenue from international markets including Europe and especially Latin-America. Harley's financial services division brings in upwards of 15% of the total revenue. Its brand value and customer loyalty is so strong that almost 1% of the revenue comes from licensing of Harley Davidson brand and logo.

Harley's sales have been increasing recently, and are just shy of the highest level reached during 2006. However, its peak stock price is about 50% higher than its current price. Given the recent restructuring and sound foundation, the company is in a much better position than it was around the economic crises.

Still, while Harley's shares are up big in the past five days, rising oil prices could put a damper on the motorcycle industry and Harley Davidson. With oil staying consistently above $100 per barrel and gasoline around $4 a gallon, Harley's showrooms could quickly become empty.

Harley Davidson has been selling motorcycles for over 100 years. For some people, it is not just a motorcycle, it is a lifestyle. With a PE ratio of almost 20 for the preceding 12 months, earnings per share of above 2.5 for the same period and an increase in its share price by around 25% since the turn of the year, investors may want to take a better look at the company. Still, caution should be given in respect to oil prices.