By Stock in Swedish car maker Volvo Cars experienced a significant drop in overseas trading, causing concern among investors. However, the reasons behind the plunge were not related to any fundamental issues such as weak car sales or rising costs. Instead, it was a technical matter that led to this decline, which could potentially present a unique opportunity for traders.
Geely’s Share Sale Triggers the Drop
The drop in Volvo Cars’ stock price (ticker: VOLCAR.Sweden) was primarily due to entities connected with its parent company, Geely, selling shares. Although Geely maintains control over the auto maker, Volvo Car stock remains listed. FactSet data shows that prior to the sale, Geely held over 80% of the outstanding shares. Following the transaction, it now holds slightly less than 80%.
Unprecedented Trading Volume
During late European trading on Friday, approximately 12 million Volvo Car shares were traded, marking a volume nearly five times higher than the average daily amount. Whenever an increased supply of shares becomes available for sale, it inevitably leads to price adjustments in order to facilitate market clearance.
The Purpose of the Share Sale
The ostensible reason behind the share sale was to benefit Volvo Car shareholders by increasing the number of shares available for trading. Although this move has created short-term volatility, a larger pool of available shares simplifies the process for larger investors looking to establish positions in the stock. Ultimately, it expands the potential buyer base.
As stock prices continue to fluctuate amid this technical development, traders and investors must remain attentive to potential opportunities that may arise.
GEELY Remains Committed to Volvo Cars’ Electric Transformation
Geely, the majority shareholder of Volvo Cars, has confirmed its unwavering commitment to supporting Volvo in its transition towards becoming a fully electric car manufacturer. In a recent news release, Geely emphasized its dedication to this global success story.
Although the precise amount that Geely plans to sell remains unknown, efforts to obtain a comment from Geely and Volvo have been unsuccessful.
Fortunately for Volvo stockholders, history suggests that things tend to rebound after significant stock sales. A prime example is Tesla (TSLA) stock.
Tesla’s CEO, Elon Musk, sold billions of dollars worth of Tesla shares throughout 2022 to finance his acquisition of Twitter. During this period, Tesla shares experienced a decline of over 60%, from the moment Musk tweeted “I made an offer” on April 14 until he concluded his stock sales in late December.
It is essential to note that Musk’s stock sales weren’t solely responsible for the decrease in share prices. The Nasdaq Composite index also experienced a decline of more than 20% during the same timeframe. Nonetheless, the sale of substantial quantities of stock invariably impacts stock prices. Furthermore, investors tend to be cautious about increasing their positions when they anticipate significant stock sales, as it would be akin to buying before an expected dip.
Interestingly, following Musk’s announcement that he had completed his stock sales, Tesla stock witnessed a 16% surge in value within a month. Two months later, the stock surged by nearly 65%.
If Geely has indeed concluded its sale of Volvo shares, there is reason to believe that the stock will recover. The lingering question remains: can investors accurately anticipate Geely’s future actions?
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