Overbeaten BMW Stock To Reverse Trend On Value Buying

The shares of Bayerische Motoren Werke (BMW), better identified as luxury automaker BMW, declined about 19% in the month of January to touch a low of Euro 76.66. Furthermore, the company dropped to third place, behind Audi and Mercedes Benz, in luxury car sales during January.

The German company, which turns a century old in March, has a stupendous growth record in China. The sales of BMW cars in China touched a high of 287,000 units in 2015, from a mere 8,707 units in 2004. In China, the company recorded a growth of about 2% in the first nine months of 2015. The growth rate is far less than the BMW group’s overall growth rate of 7.5% – a rare event going by the history.

The company sold 134,000 cars worldwide in January. Another luxury car maker Audi of Volkswagen group delivered 143,000 cars during the same period. Perhaps the most interesting statistics would be that of Mercedes Benz, which sold 150,000 cars in January 2015, up 20% from the prior year similar period.

Thus, it can be understood that the slowing Chinese economy coupled with severe competition had put a dent in the sales of BMW, thereby leading to a decline in the stock price. Another reason for the decline is that the shares of BMW were caught in a broad-based sell off of auto stocks based on the forecast that the US auto sales would only record a small growth from record 2015 levels.

In spite of temporary setbacks, BMW finished the fiscal 2015 as the leading automaker with sales of 1.91 million cars. Mercedes Benz followed closely with deliveries of 1.87 million cars, while Audi registered sales of 1.80 million cars. In fiscal 2016, the company hopes to maintain sustainable levels of growth and put up a good show.

For the quarter ended September, 2015, the company recorded earnings of Euro 2.39 per share, beating analysts’ estimates of Euro 2.28 per share. The forward price to earnings ratio of the company is only 7.9. The dividend yield of the company stands at about 3.9% per annum. Furthermore, the company continues to maintain a healthy net margin of about 6.5% for the past three fiscal years. The debt to equity ratio is at acceptable level of 1.13. Thus, fundamentally, the decline in price should be used as an opportunity to enter the stock.

Technically, as shown in the image below, the stock has a firm support at 70-levels. The major resistance exists at 93-levels.

The stochastic indicator has formed a higher low while the price fell to new lows. This indicates an imminent uptrend in the price of the stock. So, a binary options trader should purchase a call option with March end expiry. The suggested strike price for the call option is Euro 90.