Target Hospitality Corp. (not to be mistaken with Target Corp.) is a specialty rental and hospitality services company in North America. It provides accommodation services to workers in infrastructure and natural resources development companies, as well as the US government. The company went public via a SPAC merger in 2019 and is one of not so many such stocks to now trade above its debut price.
It wasn’t a smooth ride, though. By late-October, 2020, TH had actually fallen to the status of a penny stock, trading below $1 a share on the NASDAQ exchange. Investors, who were brave and insightful enough to recognize the opportunity and buy the stock near that level, are now sitting at a huge profit. Target Hospitality closed at $14.65 yesterday, down from its 2023 record of $18.48, but still up nearly 1700% from the 2020 bottom.
So, the question every interested party is probably asking is whether this is a chance to buy the dip or part of a bigger correction. Fortunately, the price chart below seems to be giving us an Elliott Wave hint already.
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The daily chart of Target Hospitality reveals that the uptrend from $0.82 to $18.48 is a textbook five-wave impulse. We’ve labeled the pattern 1-2-3-4-5. Wave 1 is a leading diagonal, followed by an expanding flat correction in wave 2. As almost always, wave 3 is the extended on in the sequence and its five sub-waves can also be recognized as i-ii-iii-iv-v.
The theory states that every impulse is followed by a correction. And indeed, the bears showed up as soon as wave 5 was over and dragged the stock down to $11.89 in April, 2023. That 35.6% drop is significant, but it seems a bit shallow compared to the impulse it retraces. Therefore, we believe Target Hospitality is still in the corrective phase of its Elliott Wave cycle.
The stock seems to be drawing a simple A-B-C zigzag in wave (2/B), where wave B is an a-b-c-d-e triangle correction. If this count is correct, wave C should now cause another notable decline towards the support of wave 4 near $10 a share. This means the company can lose a third of its market cap from the current price of $14.65 per share.
In addition to the chart above, there’s also a fundamental reason to expect more weakness from the stock. Analysts predict EPS to fall from $1.60 this year to just over $1 in 2024 on expectations for a 19% dip in revenues. All told, we think it is not a good time to join the bulls in Target Hospitality. The $10 mark would offer a much-improved risk/reward ratio.
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