Based in Parsippany, NJ, Zoetis Inc. is an animal medicine and vaccine developer and manufacturer. The company went public in 2013 and has been enjoying steady growth since. With the stock currently above $160 a share, Zoetis holds a market cap of nearly $80 billion.
For a profitable and growing company like Zoetis, a rising share price is not a surprise. However, we don’t think that its growth rate, although impressive, is high enough to justify such valuation. Furthermore, the Elliott Wave chart below suggests the tide might be about to go out soon.
The surge from $28.14 in April, 2014, to $176.64 in November, 2020, can be seen as a textbook five-wave impulse. The pattern, which saw Zoetis rallying 528% in six and a half years, is labeled (1)-(2)-(3)-(4)-(5). The five sub-waves of wave (3) are also visible and labeled 1-2-3-4-5. Wave (4) coincided with the coronavirus selloff in March, 2020.
Zoetis is a Great Investment… at Half Its Current Price
Investors could hardly make a mistake buying Zoetis in the years after its IPO. Unfortunately for the bulls, no trend lasts forever. According to the theory, a three-wave correction follows every impulse. The negative phase of the Elliott Wave cycle usually reaches the termination area of the fourth wave.
In Zoetis’ case, this means a decline to the support between $90 and $80 a share is likely. Another reason not to be very optimistic about the stock at its current price is the RSI indicator. It shows a clear bearish divergence between waves (3) and (5). If this analysis is correct, we can expect a 40% to 50% correction over the next couple of years. Given the quality of the company, it should be viewed as a buying opportunity.
Similar Elliott Wave setups occur in the Forex, crypto and commodity markets, as well. Our Elliott Wave Video Course can teach you how to uncover them yourself!