Qualys Inc., founded in 1999 and headquartered in Foster City, CA, provides cloud security and compliance solutions. Given the fast-growing sector the company operates in, it is no surprise that its stock has also been quite hot. At least until recently.
Qualys went public at $12 a share in September 2012. Despite a couple of notable declines along the way, it reached a record high of $125.22 in August 2020. Investors patient or lucky enough to hold the stock during those eight years multiplied their money by 10.
However, QLYS stock is down 22% in the past two months and closed at $97.54 yesterday. Is this a buy-the-dip opportunity or the beginning of a larger selloff? Let’s take a look at Qualys from an Elliott Wave perspective and see what we’ll find.
The weekly chart above shows that Qualys’ eight-year uptrend looks like a textbook five-wave impulse. The pattern is labeled (1)-(2)-(3)-(4)-(5), where the five sub-waves of wave (3) are also visible.
Too Early to Buy the Qualys Dip
The theory states that a three-wave correction in the opposite direction follows every impulse. Furthermore, the corrective phase of this five-three cycle usually reaches the termination area of the fourth waves. Unfortunately for Qualys investors, this means the stock can keep falling towards the support of wave (4) near $60 a share.
Overall, Qualys is a profitable, fast-growing company with no debt and positive free cash flow. Its valuation, however, makes it a bad investment. With an estimated 2020 earnings of $1.9 a share, QLYS trades at a P/E of 51, which is quite expensive. A 40% selloff down to $60 a share would still not make it cheap enough for our taste.
Similar Elliott Wave setups occur in the Forex, crypto and commodity markets, as well. Our Elliott Wave Video Course can teach you how to uncover them yourself!
