We last wrote about Australian HR consulting company Seek Limited four years ago, in October, 2022. The stock was trading around A$20.70, down from an all-time high of A$36 per share. Given the huge amount of monetary and fiscal stimulus boosting demand across the globe, it was already evident that Covid was unlikely to cause a long-lasting recession. Therefore one could argue that hiring and the labor market were going to stay strong, which in turn bodes well for Seek.
And indeed, even rapidly rising interest rates to combat inflation failed to materially lift the unemployment rate. Elliott Wave analysis, on the other hand, revealed that the stock’s decline from A$36 to just under A$19 was a five-wave impulse.
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According to the theory, impulses point in the direction of the larger trend, but are first followed by a three-wave correction before that trend can continue. Seek Limited investors were therefore not advised to let their hopes run too high. The pattern, labeled 1-2-3-4-5 in wave A, meant that wave B was supposed “to lift the stock to the mid-to-high A$20s.” Once there, the 5-3 wave cycle would be complete and it would be time for the bears to return in wave C. The updated chart below shows how the situation unfolded.
Wave B took three of the four years that have passed since our 2022 analysis, lifting Seek to just under A$30 a year ago. It developed as a simple (a)-(b)-(c) zigzag correction with an expanding leading diagonal in (a) and an expanding triangle in (b), marked a-b-c-d-e.
The bears finally delivered in the fourth year, however. The stock is down to A$11 and change, losing more than 60% over the past twelve months and wave C doesn’t seem to be over yet. Even after this sell-off, Seek is hardly undervalued at 15 times free cash flow amid mid-single digit revenue growth rates. Given that waves 3, 4 and 5 of C have yet to take place, we expect Seek stock to reach mid-single digits, before the bulls get a chance to fight back.
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