Zoetis has been doing pretty great on its own since it was spun off from Pfizer in 2013. The stock is up 443% from its IPO price of $31.50 a share despite being down by almost a third from its 2021 record. With annual revenue expected to approach nearly $10B in 2025, the company is the world’s largest producer of medicine and vaccinations for pets and livestock.
The problem is that market leaders are rarely cheap and Zoetis is not an exception. At $170 a share, the stock trades at a forward P/E of ~27. This is quite expensive for a mature company growing sales and earnings at mid-to-high single-digit rates. And while overvalued stocks can remain that way for a long time, we think that the Elliott Wave chart below should put the bulls on alert.
Similar Elliott Wave setups occur in the Forex, crypto and commodity markets, as well. Our Elliott Wave Video Course can teach you how to uncover them yourself!
We’ve already shown our readers that the 2013-2021 uptrend in Zoetis stock had taken the shape of a five-wave impulse pattern. According to the theory, a three-wave correction follows every impulse. And indeed, the stock was cut in half in 2022, falling from over $249 to just above $124 a share. That selloff can be labeled as a simple (a)-(b)-(c) zigzag, where the five sub-waves of wave (a) are also visible.
Unfortunately for the bulls, the following recovery had been limited to a three-wave structure, as well. It looks like another zigzag correction, whose wave (b) is an a-b-c-d-e expanding triangle correction. While wave (a) is another impulse, marked 1-2-3-4-5, wave (c) is best thought of as an ending diagonal. Taken together, these two three-wave sequences in waves W and X imply that a third one in wave Y down might have just begun from the 61.8% Fibonacci resistance level.
If this count is correct, the stock is unlikely to stop falling until the bottom of wave W is breached. This translates into downside targets below $120 a share – a price much closer to fair value given Zoetis’ modest revenue growth rate and mature industry.
In our Elliott Wave PRO subscriptions we provide analyses of Bitcoin, Gold, Crude Oil, EURUSD, USDCAD, USDJPY and the S&P 500 every Sunday and Wednesday! Check them out now!
