On August 11th, 2023, we wrote that the stock price of Gucci brand owner Kering S.A. was likely “to pay another visit to its pandemic lows.” The shares were trading near €520 at the time. Given that Kering fell to just under €350 during the Covid-19 panic of March, 2020, we thought it might lose roughly a third of its market cap.
And it just did. Last week, it fell to €354 a share, bringing its total decline from the 2021 all-time high of €798 to 55.6%. Fundamentally speaking, Kering ‘s fall from grace has an explanation. The company has recently fallen behind rivals LVMH and Hermes in terms of sales growth. Alas, while the fundamentals can explain the stock price drop in retrospect, it was Elliott Wave analysis that warned us about it in advance.
That being said, Kering remains a top luxury house, whose strong brands have value despite the temporary difficulties. At a P/E of 12, the stock surely looks like a bargain. In addition, the chart below also suggests that the time for a rebound might have come.
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The daily chart reveals that the decline from €798 looks like a complete A-B-C zigzag correction. Both motive waves – A and C – can be seen as five-wave impulse patterns, labeled 1-2-3-4-5. According to the Elliott Wave theory, once a correction is over, the preceding trend resumes. Kering was clearly in an uptrend prior to August 13th, 2021. So if this count is correct, it makes sense to expect a bullish reversal soon.
The MACD indicator is giving us more reasons for optimism. It shows not one, but two bullish divergences. The first one is between waves A and C, while the second one involves waves 3 and 5 of C. Not to mention that this A-B-C retracement fits as wave (IV) into our big picture outlook. The upcoming wave (V) should lift Kering to a new record in the years ahead. In other words, the stock can more than double from its current level.
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