Teledyne Technologies Inc. is an electronic and communication products provider for wireless and satellite systems. It went public in late-1999, but unlike most other companies that listed during the Dot-com bubble, Teledyne has been an astonishing success. The stock started trading at $8.44 over two decades ago. In April, 2022, it reached as high as $494 a share for a gain of over 5750%. Any investor smart and patient enough to hold Teledyne since its IPO would’ve multiplied their money by roughly 58.
The last six months, on the other hand, have been a disappointment. TDY closed just over $408 a share yesterday, down 17.4% from its all-time high. Given the undoubtedly high quality of the company, we bet that many see this dip as a buying opportunity. We have two concerns, though, the first one being Teledyne ‘s valuation. The stock trades at a P/E of 26, which we don’t think can be justified by the company’s growth rate. EPS is expected to grow at 10% a year at best going forward.
The other reason for our skepticism, however, has nothing to do with fundamental analysis. It involves the chart below and a eerily familiar Elliott Wave pattern. Let’s take a look.
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The weekly price chart of Teledyne stock reveals its entire path from under $8.50 to the vicinity of $500. As visible, it’s taken the shape of a textbook five-wave impulse. The pattern is labeled I-II-III-IV-V, where the five sub-waves of wave III are marked (1)-(2)-(3)-(4)-(5). Wave II corresponds to the 2008-9 Financial Crisis, while wave IV coincided with the 2020 Covid-19 panic.
If this count is correct, the surge from $195 to $494 must be the fifth and final wave of the sequence. According to the theory, it is time for a three-wave correction in the opposite direction. Corrections usually erase most or all of the fifth wave’s gains. In Teledyne ‘s case, this translates into a decline back to the $250 – $200 support area. That would be a 39% to 51% drop from the current level. It would bring the P/E down 10-15, more in-line with the company’s growth rate. So, instead of buying the dip, we’d rather watch from afar.
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