Pernod Ricard S.A. is a French wines and spirits manufacturer, better known by some of its products, such as Absolut Vodka, Chivas Regal and Jameson. The company went public in early-1994 at prices below €14 a share. 28 years later, in January, 2022, the stock reached an all-time high of €217.20, up nearly 1500% since its IPO.
Unfortunately for shareholders, the last six months have been rather disappointing. Pernod Ricard stock is currently trading below €170 a share, down over 22% from its record. Given the company’s financial stability and market position, some may see this dip as a buying opportunity. A quick look at the stock’s weekly chart, however, convinced us we would be much better off just staying aside.
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The chart reveals that the uptrend that lasted for 28 years had produced a textbook five-wave impulse. The pattern is labeled I-II-III-IV-V and has been developing within the parallel lines of a trend channel. Three lower degrees of the trend are visible within wave III. It is also interesting to notice that waves II and IV ended shortly after touching the 61.8% and 38.2% Fibonacci levels, respectively.
Pernod Ricard Stock Can Lose Another 35% Before Finding Bottom
If this count is correct, the bearish reversal at €217.20 marks the end of wave V and therefore the end of the entire uptrend since 1994. According to the Elliott Wave theory, a correction follows every impulse. Furthermore, corrections usually erase most or all of the fifth wave. So instead of buying the dip near €170, we believe Pernod Ricard can keep falling towards the support of wave IV near €110. This means the recent weakness is likely to evolve into a full-blown crash of about 50%.
Besides, Pernod Ricard ‘s valuation is also quite high. Sales and profits have hardly been growing in recent years, while the stock still trades at a P/E ratio higher than 30. In our opinion, money spent on Pernod Ricard should be focused on its drinks rather than the stock.
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