Why Harley-Davidson Just Became a Short Sale

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Whether it is a bull market or a bear market, short sellers have their place, and they will be looking for companies they think need to be sold now. There is a short-selling exchange traded fund (ETF) strategy for this as well, via the actively managed Ranger Equity Bear ETF (NYSEMKT: HDGE). The fund managers have just told us that their latest new short sale position is none other than Harley-Davidson Inc. (NYSE: HOG).

Harley-Davidson is one of those iconic brands that is a household name. It is also one of the great ambitions for future disposable income of millions of Americans. Calling the motorcycle maker a short sale is likely to strike a chord with some investors and consumers.

The Ranger Bear Equity team informed us that it sees rising inventories at dealerships. The company is using a “surge” inventory strategy, in which it increases the workforce during peak selling seasons to build more product. Specifically, this inventory is said to be 11,000 units more than last year, and it was also pointed out that unit sales declined almost 3% in the first six months of this year.

Another big issue is that motorcycle registrations are tapering off. In 2012, those registrations were 40% less than in 2007. To make matters worse, they fell every year, except for a slight rebound in 2011 before falling again.

The team also pointed out that Harley-Davidson’s price-point is at a premium, and competition from a revitalized Indian is likely to cut into Harley-Davidson’s market share with cheaper prices.

Also shown was that subprime loans are 20% of the total but represent 30% of the growth. The company extends credit to both retail and wholesale segments. Wholesale loan growth started to grow in the first half of 2013 by 20%, which may be coming with more dealer stress due to more inventory.

Perhaps the biggest issue on the consumer end is the belief that Harley-Davidson has a demographic problem, with a premium-priced product and an aging population to sell to. New registrations and younger consumers are just not picking up the slack.

Note that this short sell recommendation is coming at close to a 52-week and multiyear high. Harley-Davidson shares were down by one cent at $65.37 shortly after the open. The stock’s 52-week trading range is $44.48 to $66.59, and we also saw that the consensus price target from Thomson Reuters is $67.86.