This one is for our friends in South Korea and anyone else who might have access to the stock market there. Kakao Corp. is not the most well-known company in the world, but in South Korea it is everywhere. The company’s services cover instant messaging, online services, entertainment and media, mobile payments and banking, and even transportation and video games. Its dominant messenger app KaTalk has 49 million domestic monthly active users out of the country’s 52 million population. When it comes to South Korea, Kakao is king.
That’s not the impression one gets when looking at its stock price performance in recent years, though. Pandemic euphoria propelled Kakao to an all-time high of ₩173 000 per share in June, 2021. Almost four years later now, the stock is down 77% to just over ₩39 000. The good news is that according to the Elliott Wave chart below, the bottom could be near.
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The weekly chart of Kakao shows both the pandemic surge and the following crash. The structure of the latter is what interests us here. It can be seen as an A-B-C simple zigzag correction. Wave A is a five-wave impulse, marked 1-2-3-4-5, where the five sub-waves of wave 3 are also visible. Waves i and iv of 3 came close to overlapping, but as little as ₩500 separated them.
Wave C, in turn, looks like an almost complete ending diagonal pattern, whose wave 5 has yet to make a final bottom. If this count is correct, Kakao stock could lose another 25% in the short term and fall to roughly ₩30 000 per share. A bullish reversal in that area would then make sense as the post-2021 selloff comes to an end.
Kakao’s dominant market position and this Elliott Wave setup are not our only reasons for optimism, however. The company made a trillion KRW in free cash flow last year. At ₩30 000 a share, its market cap would be approximately ₩13.5T. Subtracting its ₩4T net cash position gives us less than ₩10T for the entire company or a P/FCF ratio of just 9.5. We think that’s cheap no matter how you slice it.
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