When we wrote about pet food company Freshpet in July, 2024, the stock was trading above $116 a share, up 220% from its 2022 low at $36. Following such big and fast increases, it is easy to extrapolate and conclude that a lot more gains lie ahead. In this case, however, Elliott Wave analysis warned us not to and be cautious instead.
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This chart was the sole reason for our skepticism. It revealed that the recovery from $36 was a three-wave structure, following a five-wave impulse to the downside, marked 1-2-3-4-5. Impulses point in the direction of the larger trend, meaning that the bears were likely to gain control soon. Fast-forward to today, Freshpet is down 57% to $50.01 per share. But let’s put that decline in big picture context with the help of the updated chart below.
The bulls didn’t give up easily and pushed the price to $164 in January, 2025, only to make the following selloff a lot more painful. The weekly chart reveals that the three-wave decline from $187 in 2021 came on the back of a five-wave impulse, marked I-II-III-IV-V. If this count is correct, a bullish reversal for the resumption of that uptrend can be expected once wave C is over.
It looks like most of the crash is behind us already. Having said that, Freshpet stock still has to breach the bottom of wave A, putting downside targets below $36 within the bears’ reach. Assuming a drop to around $30, that’s still another 40% to the south, before the bulls show up. The company’s high P/E ratio is another reason to remain on the sidelines.
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