Based in Espoo, Finland, and traded on the Helsinki Stock Exchange, KONE Oyj is a global leader in the elevator and escalator industry. The company has a capital-light, high-ROCE, cash-generative business model with more cash than debt on its balance sheet. What’s not to like?
While KONE is without a doubt a high-quality business, its revenue growth has been almost non-existent in recent years. The company sold €11B worth of goods and services in 2023, up from €10B in 2019. That’s just a 10% total increase over four years and management expects to add no more than 3% in 2024. The problem is that this low-growth business trades at a high-growth multiple of 25 times earnings. This makes the stock vulnerable to a rapid decline on even the slightest investor disappointment.
But valuation can remain stubbornly high for a long time. Is there a reason to expect it to drop in the foreseeable future? We believe so.
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It makes sense to expect KONE stock to tumble, because of the Elliott Wave patterns its daily price chart reveals. An impulsive decline from €76.20 to €36.72, marked 1-2-3-4-5, followed by a three-wave a-b-c correction give us a complete Elliott Wave cycle. The five sub-waves of wave 3 of A are also visible, while wave ‘c’ of B is an expanding ending diagonal.
According to the theory, the next big move should be in the direction of the five-wave impulse. Furthermore, wave C can be expected to breach the bottom of wave A, putting targets below €36 a share within the bears’ reach. If this count is correct, KONE stock could tumble by 30%-40% before finding reliable support in the low-€30s.
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