Salesforce.com stock has been a wonder to behold during the post-2008 bull market. The share prices is up 35-fold from its Financial Crisis bottom and up 83% from its pandemic low. This is not a surprise as sales and profits have been steadily growing for years with little debt on the company’s balance sheet.
On the other hand, CRM is down 32% from its all-time high of $311.75 reached in November. Sales are expected to keep rising, but apparently the business could no longer justify the sky-high valuation of ~$300B near the top.
Buying quality companies after their stocks have tumbled is a fool-proof way to long-term investing success. Does the current dip present such an opportunity, though? After seeing the Elliott Wave chart below, we have doubts.
Salesforce.com ‘s weekly chart visualizes the stock’s path ever since the company went public in 2004. The spectacular surge from the low single digits to over $310 a share can easily be seen as a complete impulse. The five-wave pattern is labeled (1)-(2)-(3)-(4)-(5).
Correction Still Unfolding in Salesforce.com Stock
Even though wave (1) took a lot more time, the extended one is wave (3) as it is bigger price-wise. Wave (2) is a running flat, which culminated in the Covid selloff in March, 2020, marked here as wave C. If this count is right, the current weakness must be part the corrective phase of CRM’s Elliott Wave cycle.
Unfortunately for the bulls, we believe it is still to early to buy the dip in Salesforce.com. The stock still trades at a forward P/E ratio of 44, meaning it remains quite expensive despite the recent plunge. On top of that, corrections consist of three waves, while the current decline looks like a single one.
Hence our pessimism regarding Salesforce.com stock at this moment. A short-lived recovery in wave (b) can deceive the bulls into thinking they’ve gotten the situation under control. However, downside targets near the support around $150 a share make sense once wave (c) begins. In fact, a re-visit of the pandemic lows near $120 wouldn’t be a huge surprise, either.
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!