BMW automobiles: design, performance, and market position

BMW Investor Analysis

It is recommended that investors sell BMW AG stock for short-term strategies. BMW has had a recent increase in profit margins and has had success in developing markets and this performance is represented in the current market evaluation. However, it is unlikely that BMW can maintain this performance in the short-term for a variety of reasons. One of the largest contributing factors to this position is that emerging markets such as China are not predicted to continue to demand BMW at the present growth rate.

BMW AG was not at all immune to the global downturn and world demand for luxury goods and services, like those that BMW manufactures, were some of the hardest hit industries. Many, if not most, of the world's largest automobile experienced losses during this period while some went bankrupt and were restructured. However BMW's stock price rebounded quite nicely as captured in the five-year stock performance illustration below (BMW Group). The recessionary rebound has translated into higher demand for the stock which has driven the price up recently.

Figure 1 - BMW AG Five-Year Stock Performance (BMW Group)

BMW was able to recover from the recession so quickly because of two key developments in operations. First BMW was able to improve its profit margins without negatively influencing sales volumes. Although BMW was noted as less resilient than other A rated companies during the peak of the recession according to S&P, the increases in profit margin performance has boosted stock value performance well above that of pre-recession levels (Reuters). As a result S&P upgraded BMW's rating to positive from stable and affirming the ratings at 'A-/A-2'.

Another factor that helped BMW to rebound quickly is that demand for its products in emerging markets has accelerated quickly. The Chinese market for instance weather the recession better than many developed nations. Additionally, China's middle class is expanding rapidly. Therefore these factors have provided a market for BMW's products that is growing and able to afford luxury goods. For example, demand from China for BMW vehicles grew by about 60% in first-half 2011 compared with first-half 2010 (Reuters). Although S&P also expects the rebound-related higher growth to come to an end in the next 12 months, if not earlier, due to a new deep stagnation in mature economies and slower demand growth from new economies.