When we wrote about retirement village builder and operator Ryman Healthcare in the summer of 2021, the stock was hovering above NZ$13.20. The share price was up 100% from its Covid-19 low at NZ$6.61, doubling in just over a year. Apparently, the market thought the worst of the pandemic had already passed. And indeed, vaccines were on their way, not to mention Australia’s and New Zealand’s strict anti-Covid measures.
Alas, Elliott Wave analysis convinced us that the end of the pandemic was unlikely to be the end of Ryman ‘s crisis. That is because the stock’s weekly price chart revealed an incomplete 5-3 wave cycle. The third and final wave of the corrective phase had yet to develop. Take a look at it below.
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According to the theory, every impulse is followed by a three-wave correction in the opposite direction. Here, there was a complete impulse pattern on Ryman ‘s weekly chart, marked (1)-(2)-(3)-(4)-(5). The five sub-waves of wave (5) were also visible. The problem is that the sharp selloff culminating in March, 2020, looked like a single wave, not three.
Ahead of the 60% Crash
So, we labeled it was wave (a) of the anticipated (a)-(b)-(c) correction. This meant the recovery to NZ$16 was wave (b), which in turn led us to conclude that “bearish targets in the NZ$6-5 area make sense” in wave (c). Once wave (c) was over, the 5-3 Elliott Wave cycle would be complete and it would be time for the bulls to take over again. But first, a decline of more than 50% was on the cards.
Fast-forward to today, it is fair to say that it’s been a bad year and a half for Ryman Healthcare shareholders. The stock initially attempted a recovery in August, 2021, but the bulls quickly lost momentum and left it at the bears’ mercy. Just a few hours ago, the market closed its December 20th 2022 trading session with Ryman at NZ$5.63.
Ryman Can Triple Provided Its Debt Load Doesn’t Kill It
In other words, the stock is down 57.4% since we identified the bearish Elliott Wave setup on its weekly chart. On the other hand, wave (c) can already be seen as a complete impulse pattern, which means the entire 5-3 wave cycle is on the verge of completion, as well. If this count is correct, Ryman ‘s uptrend should soon resume and eventually reach a new all-time high in the long term.
Fundamentally speaking, there is good and there is bad news. The good news is that Ryman trades at a very low valuation and its growth prospects appear solid. The bad news is that it is a heavily indebted company in a rising interest rate environment. Prospective investors must make sure they know the business, instead of only relying on Ryman ‘s bullish Elliott Wave setup and cheapness.
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