After sharing our contrarian bullish view on FactSet, Adobe and Intuit, today we’re going to examine another high-profile company that has fallen victim to the software-as-a-service apocalypse. We last wrote about enterprise software giant Salesforce in February, 2022. The stock was trading at $210 at the time, down 32% from its record high. Elliott Wave analysis gave us a hint that it’s decline is likely to deepen, before it ends.
Deepen it did as Salesforce kept falling until it reached $126 and change in the last days of 2022. Once a correction is over, however, the preceding trend resumes. Over the following two years, the share price nearly tripled to $369 by late-2024. Unfortunately for the bulls, that uptrend wasn’t meant to last, either. At $150 as of this writing, Salesforce stock is down 59% with no bottom in sight.
This crash hasn’t been accompanied by a similar decline in the company’s business operations, however, since sales and earnings are still healthily growing. At a single-digit P/E ratio now, CRM is beginning to look like a real bargain. Given the high quality and dominant market position of the company, many thought it was a bargain at $250, as well. So, let’s see if the Elliott Wave chart below can help us identify a possible bullish reversal area.
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The 2022 drop was, of course, a three-wave structure, marked as a simple (a)-(b)-(c) zigzag with an ending diagonal in wave (c). Despite to following surge to a new record, we now know that the preceding uptrend did not in fact resume. Instead, it was another corrective sequence in wave B of a bigger A-B-C flat correction. Flats always end with a five-wave impulse in wave C and that’s what we believe had been happening to Salesforce stock for the past year and a half.
If this count is correct, waves (1), (2) and (3) are in place already, meaning waves (4) up and (5) down are all that remains of wave C, before the bulls can finally return. With this in mind, we can conclude that the price is very likely to breach the bottom of wave A, putting downside targets near the $100 mark on the table. No-one will ring a bell at the bottom, but at that price we think investors shouldn’t be sleeping anyway.
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