Harley-Davidson (HOG)

American motorcycle manufacturing company Harley-Davidson (NYSE:HOG) missed Wall Street’s revenue expectations in Q3 CY2025, with sales falling 6.7% year on year to $1.07 billion. Its GAAP profit of $3.10 per share was 89.3% above analysts’ consensus estimates.

Company Overview

Founded in 1903, Harley-Davidson (NYSE:HOG) is an American motorcycle manufacturer known for its heavyweight motorcycles designed for cruising on highways.

Leisure products cover a wide range of goods in the consumer discretionary sector. Maintaining a strong brand is key to success, and those who differentiate themselves will enjoy customer loyalty and pricing power while those who don’t may find themselves in precarious positions due to the non-essential nature of their offerings.

Competitors in the recreational vehicle industry include Polaris (NYSE:PII), Honda (NYSE:HMC), and Arcimoto (NASDAQ:FUV).

A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Harley-Davidson struggled to consistently increase demand as its $4.40 billion of sales for the trailing 12 months was close to its revenue five years ago. This was below our standards and suggests it’s a low quality business.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Harley-Davidson’s recent performance shows its demand remained suppressed as its revenue has declined by 13.8% annually over the last two years.

We can dig further into the company’s revenue dynamics by analyzing its number of motorcycles sold, which reached 36,500 in the latest quarter. Over the last two years, Harley-Davidson’s motorcycles sold averaged 15.6% year-on-year declines. Because this number is lower than its revenue growth during the same period, we can see the company’s monetization has risen.

This quarter, Harley-Davidson missed Wall Street’s estimates and reported a rather uninspiring 6.7% year-on-year revenue decline, generating $1.07 billion of revenue.

Looking ahead, sell-side analysts expect revenue to grow 1.8% over the next 12 months. Although this projection indicates its newer products and services will spur better top-line performance, it is still below the sector average.

Harley-Davidson’s operating margin has risen over the last 12 months and averaged 11.5% over the last two years. Its profitability was higher than the broader consumer discretionary sector, showing it did a decent job managing its expenses.

In Q3, Harley-Davidson generated an operating margin profit margin of 44.2%, up 35 percentage points year on year. This increase was a welcome development, especially since its revenue fell, showing it was more efficient because it scaled down its expenses.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Harley-Davidson’s EPS grew at an astounding 41.7% compounded annual growth rate over the last five years, higher than its flat revenue. This tells us management responded to softer demand by adapting its cost structure.

In Q3, Harley-Davidson reported EPS of $3.10, up from $0.91 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Harley-Davidson’s full-year EPS of $4.12 to shrink by 12.1%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Harley-Davidson has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 11.7% over the last two years, slightly better than the broader consumer discretionary sector.

Harley-Davidson burned through $129.1 million of cash in Q3, equivalent to a negative 12% margin. The company’s cash flow turned negative after being positive in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

Over the next year, analysts predict Harley-Davidson’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 8.9% for the last 12 months will decrease to 13.3%.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Harley-Davidson hasn’t been the highest-quality company lately because of its poor top-line performance, it historically found a few growth initiatives that worked out well. Its five-year average ROIC was 19%, impressive for a consumer discretionary business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Harley-Davidson’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.

Harley-Davidson’s $5.45 billion of debt exceeds the $1.78 billion of cash on its balance sheet. Furthermore, its 6× net-debt-to-EBITDA ratio (based on its EBITDA of $651.4 million over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Harley-Davidson could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope Harley-Davidson can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

It was good to see Harley-Davidson beat analysts’ EPS expectations this quarter. We were also glad its number of motorcycles sold outperformed Wall Street’s estimates. On the other hand, its revenue missed. Overall, this quarter was mixed. The stock traded up 1.8% to $27.60 immediately following the results.

Updated: December 4, 2025 at 9:14 PM EST

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Harley-Davidson, you should also grasp the company’s longer-term business quality and valuation.

Harley-Davidson doesn’t pass our quality test. To kick things off, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. On top of that, Harley-Davidson’s number of motorcycles sold has disappointed, and its Forecasted free cash flow margin suggests the company will ramp up its investments next year.

Harley-Davidson’s P/E ratio based on the next 12 months is 17x. While this valuation is reasonable, we don’t see a big opportunity at the moment. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $27.60 on the company (compared to the current share price of $23.81).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.