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One company that has been under the radar lately is Harley-Davidson (NYSE:HOG). The iconic motorcycle manufacturer recently announced its decision to launch eight new models this year, the biggest product revamp in its 110-year-old history. Shares of the company have gained more than 25% this year on the account of two solid earnings as well as the optimism arising from the soon-to-be-released models. In addition to selling the iconic motorcycles, Harley-Davidson also offers its brand merchandise, and provides wholesale/retail financing and insurance programs to dealers and customers.

Besides restyling the eight models, the company has added a lot of technological features such as a touchscreen, Bluetooth connectivity, GPS and voice recognition technology. The model refreshments should help support pricing and boost overall sales, which in turn should enhance the profitability. Moreover, Harley’s operations have become leaner and more efficient in the last couple of years helped by the ongoing restructuring. In all, it looks like a good time for the company.

However…

On the downside, it will be difficult for Harley-Davidson to clock the kind of numbers it once boasted a few years ago for the simple reason that the demographics don’t work in favor of the company anymore. The macho image that comes along with owning a Harley has meant that the company has traditionally sold most of its motorcycles to males in their 40s and 50s. However, this segment of the population is on a decline.

The heavyweight motorcycle market size in the U.S. was about 543,000 units in 2006, but by 2010, the number had plummeted to 259,000, exacerbated by the 2008 market crash. Although the market has rebounded in the last couple of years, it is still a long way off from the peak sales. And, the changing demographics are surely having an impact on the overall market size.

Harley has done well to gain market share. But with a market share already more than 55%, you wonder how much more the company can gain. Despite selling 5% more motorcycles in 2012, the company could only manage to sell 160,000 motorcycles, compared to 273,000 back in 2006. Harley has been trying to target other demographic groups such as women and men outside the aforementioned age bracket, but with mixed success.

The company is right to invest in emerging markets. But for a company like Harley-Davidson to post significant volumes in emerging markets requires a good proportion of population with high disposable incomes. Countries like India and the Philippines offer significant potential, but the volumes are likely to remain a tiny fraction of the American sales for the foreseeable future.

We have a $59 price estimate for Harley-Davidson, which is in line with the current market price.

Disclosure: No positions.

Source: Harley-Davidson Will Revamp Model Line, But Upside May Be Limited