Only until a month ago, Booking Holdings was a significant part of The EWM Interactive Stock Portfolio. We initially bought the stock during the Covid-19 panic of March, 2020, and then added to the position in July, 2022. The company is the world’s leading online travel agency, consistently posting excellent financial results year after year. It even managed to stay profitable during the disastrous 2020.
Our two purchases in 2020 and 2022 gave us an average cost basis of $1468 a share. We thought that once travel recovers from the pandemic, Booking’s profits would surge, as well. Fortunately, that’s exactly what happened. As of this writing, analysts expect BKNG to produce a record $131 in earnings per share in 2023. This means we had only paid about 11 times earnings for this great business.
On the other hand, Booking reached an all-time high of $2732 earlier this week. The stock trades at a P/E of 20 now, which in our opinion is no longer cheap. In fact, we think the company might be slightly overvalued. That wouldn’t be such a problem if it wasn’t for two things. First, regardless of its high quality, Booking remains a cyclical business. When people’s budgets are spread thin during a recession, they simply don’t travel as much as they do in a strong economy.
The second reason why we sold our entire position at $2650 last month has to do with the 4h chart of BKNG stock. The Elliott Wave structure of the recent $1100-rally suggests it is likely to make way for a notable decline soon. Take a look below.
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The rally from $1617 to $2732 looks like a complete five-wave impulse pattern. We’ve labeled it 1-2-3-4-5, where wave 1 is an expanding leading diagonal while wave 5 appears to be an ending diagonal. According to the theory, a three-wave correction in the opposite direction follows every impulse. If this count is correct, the market is likely to be disappointed by the company’s Q1 earnings report due later today.
Besides, there is a strong bearish RSI divergence between waves 3 and 5, which further highlights the bulls’ exhaustion. A notable retracement back to the support area near $2200 should not come as a surprise. And while Booking is no longer part of our portfolio, there are still 18 other stocks in it whose prospects we like better.
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