Global luxury hotel chain Hilton Worldwide is a good example of the fact that in investing, the best time to buy is when everyone else is panickily selling. The stock fell by more than 60% in just two months in early-2020 as Covid-19 swept the globe, closed borders and stopped travel. Investors who saw the short-term panic as the long-term opportunity that it was and bought Hilton stock, however, have nearly tripled the return of the S&P 500 over the past six years.
HLT is up 655% from its bottom in March, 2020, not counting the dividends. The pandemic feels like a distant memory now, travel is hitting new records every year and so is the revenue of major hotel chains. What we must not forget, however, is that price can cut both ways. The same asset can be a great deal at one price and a terrible one at another. Following its phenomenal post-pandemic surge, Hilton Worldwide trades at 37 times earnings. This is expensive for almost any company, let alone a mid-single digit revenue grower. Besides, the Elliott Wave chart below suggests that this high valuation could soon become a problem.
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Hilton’s weekly chart reveals that the post-pandemic bull market has produced a textbook five-wave impulse. We’ve labeled it (1)-(2)-(3)-(4)-(5), where the five sub-waves of wave (5) are also visible. According to the theory, a three-wave correction follows every impulse, usually erasing the entire fifth wave. If this count is correct, this translates into a decline back to the support of wave (4) near the $200 mark. From the current price of $332 per share, that’ll be a 40% drop to drag Hilton’s P/E to a more reasonable 20.
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