Grand Canyon Education Inc. (NASDAQ:LOPE) is an education services provides founded in 2003 and based in Phoenix, AZ. The company went public in November, 2008, which turned out to be a great time for investors in general to buy stocks. As of this writing, the share price of Grand Canyon Education is up ten-fold since its market debut.
The company is profitable, debt-free and at a P/E of 16 it seems fairly valued, as well. In a strong vote of confidence in its future by management, LOPE bought back a quarter of its outstanding shares in 2022. Does this make it a ‘buy’ at the current level of just over $102 a share? The fundamentals seem to be giving us a positive answer, but the Elliott Wave chart below is a cause for pause.
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The weekly price chart reveals that the uptrend between late-2008 and August, 2019, took the shape of a five-wave impulse. We’ve labeled the pattern as (1)-(2)-(3)-(4)-(5), where the five sub-waves of wave (1) are also visible.
According to the theory, a three-wave correction follows every impulse. And indeed, the end of wave (5) at $132.72 was followed by a fast and sharp drop to under $58 in March, 2020. Investors, who bought Grand Canyon Education stock during the Covid-19 panic more than doubled their money by the spring of 2023.
Unfortunately for the bulls, the plunge to $57.89 looks like another impulse, marked 1-2-3-4-5. This makes us think it was only wave (a) of a bigger (a)-(b)-(c) zigzag correction. The recent recovery to $124.53 in May must then be wave (b), meaning another notable drop can be expected in wave (c). Downside targets near the 61.8% Fibonacci support level make sense before the uptrend can finally resume.
In other words, LOPE can fall to the low $50s before finding bottom. From the current level, that would be a ~50% plunge. So instead of joining the bulls in Grand Canyon Education, we plan to just stick to the 17 positions in our stock portfolio for now. Their risk/reward ratios are, in our opinion, a lot more attractive.
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