In our previous article we examined Advance Auto Parts stock through the prism of the Elliott Wave principle. Today, we are going to take a look at another company in the same industry – O’Reilly Automotive Inc. – whose ORLY stock exceeded $394 per share last month.
But it hasn’t always been that easy for O’Reilly bulls. Less than two years ago, in July 2017, the stock fell sharply to under $170 on the back of a disappointing same-store sales guidance by the company. The stock lost 22% following the news.
Instead of losing hope, investors saw the plunge as a buying opportunity, which eventually led to the strong rally shown below.
As it often happens when you buy the bad news about otherwise strong companies, O’Reilly’s disappointment delivered very solid returns for those who had the courage to jump in. Unfortunately, no trend lasts forever.
The chart above shows that ORLY stock ‘s uptrend from $170 to $394 is a textbook five-wave impulse pattern. It is labeled 1-2-3-4-5, where the sub-waves of wave 1 are also visible and wave 4 is a triangle correction.
According to the Elliott Wave theory, a three-wave correction in the opposite direction follows every impulse. This means that instead of waiting for even more gains, O’Reilly shareholders should prepare for a notable decline to the support area near $290.
If this count is correct, the anticipated retracement can erase 20% of the company’s market value. In addition, its P/E ratio, currently at 22.3, also suggests ORLY stock is far from a bargain right now.
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