After the massive success of Amazon (NASDAQ:) Web Services, it’s easy to see why cloud computing is such a hot area right now. However, no trend lasts forever And no stock remains a Wall Street darling indefinitely. Today, we’d like to examine another red-hot company in the cloud industry—Service Now (NYSE: ).
With a market cap of over $120 billion, the California-based company can already be considered a cloud services giant. At least until someone knows that its 2021 sales are expected to be below $6 billion. While $6B is no small feat in itself, it means ServiceNow stock is Incredibly more valuable at 20 times sales. Furthermore, the company is barely profitable so its forward P/E ratio of 106 is practically meaningless.
Of course, Service Now didn’t get overvalued overnight. It’s been around for quite some time, but investors didn’t care as long as it maintained a satisfactory sales growth rate. However, the growth rate is not expected to decline any time soon. Therefore why would it be different now What else could stop the stock from going up yet?
Our answer is the Elliott wave chart above. This shows the unprecedented and, we admit, very rewarding uptrend ServiceNow investors have been enjoying since its public debut in 2021. As seen, it can be viewed as a complete impulse pattern, labeled (1)-(2)-(3)-(4)-(5).
It looks different this time for Service Now Stock
The market has also taken into account the guidelines of the options. Wave (2) looks like an ongoing flat correction, while Wave (4) is a simple zigzag. This means that the recent high of $681 per share should be the last wave (5). And this is something the oxen should be worried about.
According to the principle, Three-wave correction follows every impulse in the other direction. Normally, the corrective phase of the cycle wipes out the entire fifth wave. Given the excessive overvaluation of Service Now, however, we can easily imagine that the price is well below the wave (4) support near $450. In fact, we suspect a 50% drop will make the stock a bargain even to ~$340.
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