Valuation multiples are widely used in the auto industry (XLY) to compare companies. However, it is important to understand that we can only use valuation multiples to compare companies that are similar in nature in terms of business, size, or financials. In Harley-Davidson’s (HOG) case, no other publicly listed automaker is similar enough to the company’s business. Therefore, we’ll use valuation multiples of some Japanese motorcycle makers to compare to Harley-Davidson’s valuation multiples.
As of March 29, 2016, Harley-Davidson’s forward EV/EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple is 10.6x. This multiple is calculated based on the company’s estimated EBITDA for the next 12 months. The multiple is significantly higher than the EV/EBITDA of Japanese motorbike makers Yamaha and Kawasaki with 3.9x and 6x, respectively.
The EV/EBITDA multiple is an important relative valuation multiple. It’s generally used for capital-intensive industries such as the auto industry.
Forward PE multiple
To calculate the forward price-to-earnings multiple, we use earnings estimates as a denominator. Harley-Davidson’s forward PE multiple, based on its earnings forecast for the next 12 months, stands at 11.5x, higher than Yamaha’s 6.8x and Kawasaki’s 8.4x. Harley-Davidson commands higher valuation multiples, as it’s still a leader in the premium heavyweight motorcycle segment.
Note that in the auto industry, valuation multiples of Toyota (TM) typically trade much higher than those of major US automakers like General Motors (GM) and Ford (F). This is partially because Toyota has a strong presence in the premium vehicle segment, which yields higher margins than mass-marketed vehicles.
Factors affecting HOG’s valuation multiples
Harley-Davidson is currently going through a tough period and is struggling to protect its margins in many markets. In addition, other factors pose a risk to the company such as strong competition from Japanese motorcycle manufacturers. The continuation of these risk factors in the current year may increase the company risk profile and lower its valuation multiples even further.