Headquartered in London, UK, 3I Group PLC (LON:III) is a multinational private equity and venture capital company. Its field of operation makes is highly dependent on the capital markets and the state of the economy. For example, 3i Group stock fell sharply during both the 2000-2002 Dot-com crash and the 2007-2009 Financial Crisis. Between September 2000 and March 2009, the company lost roughly 92% of its market value.
Obviously, this is not a company investors can feel safe with when the going gets tough. On the bright side, 3i (LON:III) Group delivered some very good returns in the past decade. The stock rose from as low as 109 pence per share in March 2009 to as high as 1189 as of last month. A total return of 990% in 10 years, or 27% compounded annually, is something every investor can be proud of.
But can we rely on 3i (LON:III) Group to keep bringing similar results going forward? The economic expansion is in its eleventh year already and we know from history and experience that no trend lasts forever. In order to find out if 3i Group stock is a good pick now near 1100, let’s take a look at its Elliott Wave chart below.
The weekly chart of 3i (LON:III) reveals a worrying picture. It shows that the recovery from the low in March 2009 has taken the shape of a complete five-wave impulse. The pattern can be labeled (1)-(2)-(3)-(4)-(5), where the five sub-waves of wave (3) are also visible. The market has taken the guideline of alternation into account, too. Wave (2) is an expanding flat correction, while wave (4) is a sharp drop.
Unfortunately for the bulls, the Elliott Wave theory states that a three-wave correction follows every impulse. Since 3i (LON:III) Group’s impulse is already complete, it makes sense to prepare for a corrective decline now. Bearish targets near the support area of wave (4) or lower are plausible. If this count is correct, we can expect a slump to around 700 pence per share from current levels. That is a ~35% drop we’d rather observe from a safe distance.