Uncertainty and tariffs are bad for any business, but few were in greater danger than European wine and spirits manufacturer Pernod Ricard. Based in Paris, France, the company derives nearly a third of its revenue from the US. After President Trump threatened to impose 200% levies on alcoholic beverage imports from the EU, the block decided to leave the industry out of its retaliation plans.
That didn’t help the stock of Pernod Ricard much, though. The share price is down by more than 50% from its 2023 record following a sharp selloff from €218 to €83 in just two years. But honestly, what were investors thinking near €200 per share? At that price, the company’s market cap was in the vicinity of €50B, while it only makes roughly a billion in free cash flow per year. Not to mention that Pernod Ricard is far from a fast-growing business that could justify such multiples. And as if valuation wasn’t a strong enough warning signal, Elliott Wave analysis gave us another one three years ago.
On June 20th, 2022, we wrote that Pernod Ricard’s “dip can evolve into a 50% crash“. This might have sounded like just another attention-grabbing headline at first, but it made perfect Elliott Wave sense. Our pessimism was based on the chart above, which revealed a complete five-wave impulse pattern. We labeled it I-II-III-IV-V, where three lower degrees of the trend were visible within wave III.
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According to the theory, a three-wave correction follows every impulse and usually erases the entire fifth wave. So instead of buying the dip in this clearly overvalued stock, we thought that “Pernod Ricard can keep falling towards the support of wave IV near €110.” As it turned out, we weren’t bearish enough.
Instead of a simple three-wave structure to the downside, Pernod Ricard drew an A-B-C expanding flat correction. In an expanding flat, waves A and B consist of three sub-waves, while wave C is an impulse pattern. The new high in wave B changes nothing overall, but it is the worst that could happen to the bulls, who often see it as a buy signal. It wasn’t.
The bears took the wheel in April, 2023, and remain in control two years later now. Trump’s tariffs only made a bad situation worse, but they were not the main reason for the crash. The stage was set for it much earlier. And it seems Pernod Ricard can lose another third of its market cap towards €60 a share before finding bottom, since wave C doesn’t look like a complete five-wave impulse yet.
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