Kinaxis Inc. is a supply chain software provider based in Ottawa, Canada, and listed on the Toronto Stock Exchange. The stock price is down 35% from its 2021 all-time high of C$230 a share, but is still up more than eleven-fold since its 2014 IPO. The bad news for Kinaxis shareholders is that there are reasons to expect further weakness going forward.
For starters, the stock is far from cheap at a forward P/E ratio of 47. Even after we factor in the company’s estimated mid-double digit revenue growth rate, it is hard to call Kinaxis a bargain at C$150 a share. In addition, the Elliott Wave setup the stock has been drawing since its 2014 public debut does not seem complete yet.
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Between 2014 and 2021, Kinaxis drew a complete five-wave impulse pattern, labeled 1-2-3-4-5. The five sub-waves of all three motive waves – 1, 3 and 5 – are also visible. Wave 2 was an expanding flat correction. Despite being unusually deep, wave 4 didn’t touch the top of wave 1, which allowed wave 5 to lift Kinaxis to a new record.
According to the theory, a three-wave correction follows every impulse. And indeed, nearly three years later now, the stock hasn’t been able to exceed the 2021 high. The problem for the bulls, besides the high valuation, is that the bears have more room to run in the corrective phase of the cycle. It looks like a triangle wave B is now in progress, following a leading diagonal in wave A down to C$119.
If this count is correct, we can expect more downside in wave C once wave ‘e’ of B is over. The support area just under the C$100 mark near the 61.8% Fibonacci level would be a natural bearish target. This implies another 35%-40% decline for Kinaxis, before the entire A-B-C correction is over and the preceding uptrend can resume.
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