It’s easy to match the overall market return by buying an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. For example, the Harley-Davidson, Inc. (NYSE:HOG) share price is down 26% in the last year. That’s disappointing when you consider the market returned 12%. Even if shareholders bought some time ago, they wouldn’t be particularly happy: the stock is down 21% in three years.
Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they’ve been consistent with returns.
To quote Buffett, ‘Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace…’ One way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).
Unfortunately Harley-Davidson reported an EPS drop of 40% for the last year. The share price fall of 26% isn’t as bad as the reduction in earnings per share. So the market may not be too worried about the EPS figure, at the moment — or it may have expected earnings to drop faster.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
This free interactive report on Harley-Davidson’s earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
Investors in Harley-Davidson had a tough year, with a total loss of 24% (including dividends), against a market gain of about 12%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 1.2% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It’s always interesting to track share price performance over the longer term. But to understand Harley-Davidson better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We’ve identified 3 warning signs with Harley-Davidson (at least 1 which is significant) , and understanding them should be part of your investment process.
