Founded in 1995 and headquartered in Reston, VA, VeriSign is a $23B Internet infrastructure provider. The company went public in 1998, just on time for the Dot-com bubble. 23 years later, the stock is still below it 2000 peak price, despite coming very close to a new record in late-2021. The lesson here is that it is better to avoid bubbles altogether, because no trend lasts forever. You never know how long you’ll have to wait just to break even if you buy at the wrong time.
On the other hand, VeriSign is a very different company now. It made over $1.4B in revenue in 2022 and nearly half of that made its way to the bottom line. Alas, that’s not much higher than the $1.2B VRSN made in sales five years ago, in 2018. This top-line growth stagnation helps explain why the stock trades at roughly the same level it did in mid-2019.
VeriSign ‘s forward P/E ratio of 30 is enough of a reason for us to avoid the stock. A quick look at its daily price chart only reinforces our skepticism.
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The first half of 2022 saw VRSN falling 40% from $257 to under $156 a share. The second half told a completely different story as the stock climbed 26% to over $209. The recovery continued to $224.56 by early-February, 2023, when it screeched to a halt. The bad news is that fitting these two large moves together produces a textbook 5-3 Elliott Wave cycle to the downside.
The decline in H1 2023 is a clear five-wave impulse pattern, labeled 1-2-3-4-5 in wave (A). Wave 2 was an expanding flat correction and the five sub-waves of wave 3 are also visible. According to the theory, a three-wave correction follows every impulse. Here, the recovery to over $224 a share can be seen as a simple A-B-C zigzag in wave (B) where wave B is a flat correction.
If this count is correct, it is time for another major selloff in wave (C) to complete VeriSign ‘s bear market. Another reason for pessimism is the fact that the bulls found the 61.8% Fibonacci resistance level difficult to breach. Wave (C) is expected to be similar in size to wave (A) and therefore drag VRSN stock below the $150 mark. $130 is not out of reach, either. From the current level of $207, that would be a 32% decline at mid-point.
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