Peugeot (UG.PA) is one of the largest car manufacturers in Europe. Around one million cars were sold in Europe in 2015, and they also have a strong presence in emerging markets such as China.
Peugeot has added one hundred more new sales outlets in China, reaching more than five hundred to date. This says much about the aggressive expansion strategy the company has used in recent years. It is no wonder that Chinese sales grew four times more when compared with the rate of growth of the whole Chinese market.
It came as a surprise when the recent Iran nuclear deal was announced this year. It turns out Peugeot had a really strong market share there and Iran was its second-largest market next to France, prior to them pulling out of there in 2012. The availability of replacement parts and the ability to build on a brand that has so much value in Iran is a strong promise. In order to have an idea about the size of the Iranian market and its potential, consider that it has a population equal to Germany’s.
Continuing on a fundamental perspective, exporters in Europe are enjoying the lower Euro. The ECB (European Central Bank) is running a quantitative easing program designed to stimulate growth and bring inflation back to its 2% target. One of the first effects of such a program is that the value of the currency is being diluted. This is a pretty good incentive for big exporters like Peugeot.
Considering that inflation is not picking up and we’re seeing deflation in Europe, by the time the program runs its course (it is supposed to run until September 2016), chances are that the ECB will then step in to do some more. Further easing means further stimulus.
With such a strong fundamental picture, the technical side is not looking that different either. After the double top made it in the €60/share area in 2002 and 2008 and that the measured move has been completed, the market is forming a possible inverse head and shoulders pattern on the lower time frames.
This is a reversal pattern and points towards higher values, however, the current 15.09 level is not where the neckline should be. In a classic head and shoulders pattern, the price travels to the upside of the left shoulder consolidation, and then travels back to the lower side, forming a similar range with the one on the left side.
That being said, I am favoring a put option on Peugeot by the time the market reaches €16.5/share, with an expiration date between two weeks and one month. Then when the market falls to €15/share, I would trade a more aggressive call option than the previous one as a move into €14.5 and €14 should follow.
If I were to put a risk premium on the trades, I would say the put option is the riskiest.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
