Taylor Wimpey is a £3.7B British homebuilder operating in the UK and Spain. The company went public in London just in time for the 2007-2008 housing crash. The stock has been trading below its IPO high ever since, meaning its long-term investors have been under water for 15 years now. This shows just how important it is to be able to recognize and avoid financial bubbles.
In early-2020, it looked like the share price was finally on its way to revisit the 2007 highs. Alas, the one-two punch of the coronavirus pandemic and the current tightening cycle caused another 66% plunge. Having said that, investors lucky, brave or smart enough to buy Tailor Wimpey in late-2008, are still up roughly ten-fold at the current price of £1 a share.
The lesson here is that stocks should be bought precisely when all hope is lost. With that in mind, we decided to take a look at TW’s weekly chart below. What we found was a complete Elliott Wave cycle pointing north.
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Between the 2008 bottom at 3 GBp and the 2020 high at 238 GBp, there is a clear five-wave impulse. The pattern is labeled I-II-III-IV-V, where three lower degrees of the trend are visible within wave III and wave IV is a triangle. The theory states that a three-wave correction follows every impulse. In the case of Taylor Wimpey, a W-X-Y double zigzag dragged the stock to just over 80 GBp a share in October, 2022.
Little is Required for a Material Upside in Taylor Wimpey Stock
If this count is correct, the 5-3 Elliott Wave cycle from the 2008 bottom is now complete. According to the theory, we can now expect the trend to resume in the direction of the impulse pattern. Furthermore, the price bounced up shortly after touching the 61.8% Fibonacci level, where second waves usually end. Targets above 240 GBp a share make sense in the long term in wave (III/C).
Besides, although not growing much, Taylor Wimpey is a profitable and debt-free company with very low CapEx needs, trading at a mid-single digit P/E ratio. We believe that the first beam of light at the end of the tunnel of the current UK crisis can lead to material upside in the stock.
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