Volkswagen shares tumbled after reports revealed that the company allegedly used a device to manipulate its emissions tests results. This was followed by a selloff among automobile shares in Europe and the US, as investors worried that an industry-wide probe might take place.
On its weekly time frame, Daimler automobile shares are completing a double top reversal pattern, signaling a potential long-term selloff. For now, price is still above the formation’s neckline and the long-term ascending trend line, suggesting that the climb might still resume at some point.
In addition, stochastic is moving out of the oversold zone, reflecting a buildup in buying pressure. RSI is on the move down, which means that sellers aren’t done dumping automobile shares just yet. Meanwhile, the 100 SMA is above the 200 SMA so the longer-term rally might stay intact.
Automobile Shares Outlook
For some investors, the recent slump in automobile shares presents an opportunity to buy at lower levels, as other companies and German automakers are likely to retain their positive outlook.
In particular, Daimler currently has a Value Style Score of ‘B’ and an impressive forward P/E ratio of 8.2, which is lower than the industry forward P/E ratio of 10.8. The company’s expected long-term earnings per share growth rate is pegged at 11.6%, as mentioned by Zacks Equity Research on Yahoo! Finance.
Other car makers in the non-diesel segment also suffered a slump earlier this week but these automobile shares are more likely to enjoy a strong recovery, as the emissions probe might not dwell too much on electric cars. Some analysts say that the fallout could be concentrated on the European carmakers, which have invested tens of billions of euros in diesel technology over the last 15 years.
Sales of diesel cars could suffer a downturn in the coming months, although this represents a small niche market in the US and accounts for less than 4% of overall sales.
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