Volvo turns bullish on rising worldwide demand

Following the fiscal 2016 second-quarter results that topped the analyst expectations, the stock of automobile manufacturer Volvo (OTC: VLVLY, SS: VOLVB) has risen by about 20% to $10.93. The company is expected to report its fiscal 2016 third-quarter results on October 21.

During the second-quarter the company was able to report splendid results mainly due to an increase in demand in the Europe. The company was not able to perform well in the US and Brazil. However, we believe that the company will be able to surprise the market once again this time due to the reasons mentioned below.

The Goteborg, Sweden-based company reported a 7% decline in the net sales to 78.890 billion Swedish Krona, from 84.78 billion Swedish Krona in the second-quarter of fiscal 2015. For the Q2 2016, the manufacturer of Renault trucks posted net income of 1.99 billion Krona or 0.97 Krona per share, compared to 5.193 billion Krona or 2.53 Krona per share in the Q2 2015.

Volvo Trucks

The company gave a region wise sales forecast for fiscal 2016. In Europe, Volvo sold 127,000 trucks (heavy) in the first-half of 2016, up 20% compared to last fiscal year.

The company anticipates finishing 2016 with sales of 290,000 units. In China, Volvo hopes to sell 610,000 units (heavy) in 2016. It is 55,000 units higher than the prior estimates. The semi-annual sales figure in China was 340,229, up 15% on a y-o-y basis. In India, the company has forecasted sales of 250,000 heavy duty trucks in 2016.

During H1 2016, the company sold 124,609 trucks, which represents a growth of 27% on a y-o-y basis. In North America, the company now expects to sell 240,000 heavy-duty trucks, down from 250,000 units forecasted earlier. The company has so far sold 127,879 units in the first-half of 2016.

Except North and South America, all other regions are anticipated to report a growth in sales in the fiscal 2016. In the first-eight months of 2016, Volvo cars posted a sales growth of 10.1% on y-o-y basis. The launch of new models is expected to further increase the demand in the second-half of 2016. If the trend continues, then the company may post a record profit in 2016. Thus, fundamentally, the stock is expected to remain bullish in the weeks ahead.

The Chaikin money flow indicator shows that money is flowing into the stock.. Furthermore, the chart indicates an established resistance at 11.75. The historic price chart also shows an established support at 10.75. Thus, technically, we believe that the stock would remain in an uptrend for the next few weeks.

Based on the above arguments, we believe that investing in a one touch call option can make way for reasonable profit in a short period of time. The target price for the call option should be $11.70 or lower. The trader should also look for a four week time span for the expiry of the put option.