Investors, Look To Buy Volkswagen On The Dip
The emissions scandal that Volkswagen AG (ADR) (OTC: VLKAY) is facing has taken the company's shares down by roughly 30 percent over the past two days.
The company is also facing massive fines and even criminal lawsuits in the United States; a new probe looking into its software in the UK has also begun.
While the outlook may seem gloomy for the carmaker, some investors are looking to the company as a buying opportunity. However, such a strategy begs the question, are VW shares at the bottom yet?
The Environmental Protection Agency (EPA) has said that Volkswagen could be forced to pay up to $18 billion dollars in fines for manipulating the results of its cars' emissions tests. The fines represent a huge chunk of the company's cash reserves, but some analysts say the firm has enough on hand to cushion the blow.
At the end of June, the company's financials showed that it had around $37 billion worth of cash and equivalents.
If the scope of its emissions problems doesn't widen, that means the firm will be able to handle legal fees and fines without too much damage.
However, the biggest concern for many is whether the company will be able to overcome the damage done to its reputation.
Fitch ratings said the company's A-rating was in doubt on Wednesday, as the scandal unfolded and many worried that the North American market could turn against the firm in the wake of this incident.
However, others say that the firm is taking necessary steps to turn things around and contain this crisis and that its status as the world's largest carmaker offers some protection.
Volkswagen Chief Executive Martin Winterkorn stepped down on Wednesday, and rumors that Porsche's Matthias Muller will be named to take over began to circulate.
However, most expect that Volkswagen's house-cleaning efforts won't end there.
Engineers are likely to follow Winterkorn as the incident is further investigated and the company steps up efforts to determine who was responsible for the software. It's estimated that 11 million cars around the globe have been affected by the glitch, so it's difficult to say how many regulators will begin investigating Volkswagen emissions tests.
While Volkswagen has a rocky road ahead, many are wondering if now is the time to buy.
Some worry that the probe in the UK will reveal that the faulty emissions sensors were a problem in Europe as well, something that could drive the company's shares even lower.
However, if the problem is contained to only cars sold in the United States and the firm is able to do some damage repair, the company's shares may be poised for a bounce.
Contrarian investors with an appetite for risk are looking to the company now for signs of a turnaround, while more cautious traders are likely to wait for more news for a clearer picture of the company's direction before getting on board.
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