BMW is why you do not buy cyclical businesses at low PEs
u/mrmrmrj ·
Reddit — r/ValueInvesting
· June 17, 2026 at 14:55
· ⬆ 26 pts
· 💬 18 comments
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AI Summary
Summary
Author argues that BMW’s low P/E in 2022 was a trap because cyclically high earnings collapsed from €27 to €8, with margin guidance near 0–1%.
Thesis: Cyclical businesses like automakers are dangerous to buy when earnings are at a peak; the real buying opportunity emerges after earnings appear expensive even at a lower stock price.
Quality: Speculative insight based on a single company example; lacks detailed financial modeling or competitive analysis, but raises valid cyclical valuation principles.
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Cyclical industry investing is challenging. When business is booming, earnings soar, making valuations look very attractive. However, these high watermark earnings levels are susceptible to rapid decline from any macroeconomic or competitive supply shocks. The auto manufactures have always been susceptible to reality. Making cars is not a very good business to begin with and so much of the sales cycle is now tied to financing that the cyclical sensitivities have increased.
BMW earned €27 per share in 2022. The stock price was €70-80 euros. The shares soared on EV hopes and then reversed dramatically as earnings have collapsed to €8. Earnings guidance this week looks even worse than that now as net income margins are expected to be 0-1%. When those earnings finally print, the shares will look expensive even at €30 or €40.
That will probably be the time to consider buying. We shall see.
BMW earned €27/share in 2022 (stock €70–80), now earnings collapsed to ~€8 with net margins at 0–1%. The author implies that when earnings look expensive at €30–40, that may signal a cyclical bottom worth buying. Wait for further deterioration in earnings and sentiment before considering a long entry; avoid buying now. Auto sector disruption (EV competition, tariffs), BMW’s China exposure, or a deeper recession could delay any recovery.