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BMW plunges to 5-year low on China weakness — short the bounce

BMW just warned investors that its profits are going to be much lower than expected. The company blamed a major sales slowdown in China and disruptions from the Middle East conflict, causing its stock to crash to its lowest price in five years.

Idea

When a major company warns that its profits are shrinking, its stock often struggles for a long time because Wall Street analysts have to completely rewrite their financial models. Problems in China's economy are not going away overnight, which means BMW's sales in that region will likely stay weak for months. Even though the stock just dropped sharply, betting against a falling knife can be highly profitable if you manage your risk. This is a classic downtrend trade driven by broken fundamentals.

Key details

BMWYYD#stock#autos#earnings

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