The Razor’s Edge

2-Year Price History

Ockham’s Rating

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HOG Revenue

As we have often noted, in our valuation methodology, "Cash is King." Well, it goes without saying that if a company cannot produce sales then there is no ability to generate cash flow. By that logic we look very closely at revenue numbers as our second most important factor in valuing a company’s stock. We have established reasonable Price to Sales per share ranges based on historical data of the last 10 years. For, HOG the high and low end of the Price to Sales per share ratios are 2.39x and 1.45x respectively.

Notice that HOG’s current Price to Sales per share ratio is 0.60x, which is quite a bit below what we consider a normal Price to Sales ratio for this stock. Given normal conditions and a price of $14.42, HOG is 69% below where we would expect to see it. This will beneficially factor into our final analysis of HOG as it is not often that this stock sinks to these levels.

HOG Cash Earnings

Looking at HOG specifically in their Cash Earnings capabilities, Ockham views HOG as significantly below their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for HOG, the current level of Cash Earnings compared to its historical levels helps identify where HOG is in relation to what the investing community was willing to pay for this level of Cash Earnings in the past. With a historical high Cash Earnings per share ratio of 12.01 and a historical low Cash Earnings per share ratio of 7.20, an investor can relate where value becomes optimal.

So what does "significantly below" mean when we talk about Price to Cash Earnings numbers for HOG? From the Ockham perspective, we are looking specifically at HOG to see if the market is recognizing the huge disparity between HOG’s past stock price to Cash Earnings ratio to today’s levels. At a difference of 69% below the average historical Price to Cash Earnings ratio, our view would be quite positive at this point. However, as with all metrics, we need to also take other factors into account when looking at HOG. While we view better Cash Earnings metrics as very important, if the market is slow to identify this value, or if Cash Earnings were to fall from these levels, we would become more neutral in our stance.

HOG Dividends

A positive Ockham rating does not require a company to pay out an inviting dividend or a dividend at all. However, we believe dividends provide a useful measure of a company’s inherent expectations.

Comparable to our analysis of Sales and Cash Earnings per share, we examine dividend yields from HOG against the historic high and low levels over an available data range. Because HOG has an established history of paying a dividend to shareholders, there is value in comparing recent dividends to historical dividends. In HOG’s case, the estimated annual dividend is $1.32 producing a current dividend yield of 9.15%. The highest dividend yield from HOG in recent history was 13.11% while the lowest dividend yield was 0.20%. It’s hard not to notice that HOG pays a current dividend yield that is 37.49% above the historical median. This peaks our interest since our analysis is looks favorably upon dividend yields that are greater than the historical median.