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Are Harley-Davidson’s Weak Sales Driving Pessimism in 1Q18?

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Mar. 22 2018, Updated 7:30 a.m. ET

Harley-Davidson stock

In the week that ended on March 16, 2018, Harley-Davidson (HOG) stock traded on a negative note. The stock ended the week at $44.14 with a minor fall of ~0.5%. With this, the company’s stock has fallen ~2.7% in March so far.

As of March 16, HOG has fallen ~13.2% quarter-to-date compared to the 2.9% quarter-to-date fall in the S&P 500 benchmark. During the same period, key US automakers (IYK) General Motors (GM) and Ford Motor Company (F) have fallen 7.4% and 9.7%, respectively, while Fiat Chrysler Automobiles (FCAU) has risen 18.2%. Let’s find out what factors could be fueling pessimism in Harley-Davidson stock in 1Q18.

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Weakness in sales

In the last couple of years, Harley has been facing major challenges on the sales front in most of its key markets, including the United States, where its sales have nearly stagnated. In 2017, Harley-Davidson’s operating margin contracted to 12.5% from 14.7% in 2016. During its fourth-quarter earnings conference call, the company’s management also gave dismal guidance for fiscal 2018. Harley expects its operating profit margin to be in the range of 9.5%–10.5% this year, which would be even lower than the 12.5% it reported in 2017.

In 4Q17, Harley’s adjusted EPS (earnings per share) were $0.47, ~74.1% higher than its EPS in the same quarter of 2016. The company’s 4Q17 global motorcycle retail sales fell ~9.6% due to ongoing weak demand in its key markets, including in the United States, the Asia-Pacific region, and Europe.

HOG also reported a nearly flat gross margin of 30.9% in 4Q17 compared to 30.7% in 4Q16. Consistent weakness in sales in its key markets could be one of the main reasons why HOG stock traded on a weak note in 2017.

Key support and resistance

On the daily price chart, the stock’s 14-day RSI (relative strength index) was hovering well below the line of equilibrium at 35.8. This indicator reflected underlying weakness in the stock’s momentum. HOG’s 50-day simple moving average was $48.50, much higher than its market price of $44.14—another confirmation of the negative bias in its price trend.

A key horizontal support level in HOG stock lies near $42.60. A violation of this support could attract renewed selling pressure in the stock.

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