Airbus Group (EPA:AIR) NV (OTC:EADSY) made the news earlier this week after it secured a record-breaking order from India’s biggest airline. IndiGo just ordered 500 narrow-body jets from the French aircraft manufacturer. But the planes will only be delivered between 2030 and 2035, and Airbus still hasn’t fully recovered from the pandemic. The market, however, has already pushed to stock within a touching distance of a new all-time high.
2022 revenue at the company was about €12 billion below the 2019 figure, but the share price has recouped virtually all of its pandemic losses. So is Airbus stock a Buy in anticipation of a full sales recovery or is the market getting ahead of itself? The weekly chart below, viewed from the lens of the Elliott Wave principle, gives us a clear answer.
The weekly chart of Airbus reveals the stock’s entire uptrend since the bottom in March, 2003. Just over twenty years later now, we see an almost complete five-wave impulse. The pattern is labeled I-II-III-IV-V, where the five sub-waves of wave III are also visible. Wave II culminated in the 2008 Financial Crisis, while wave IV coincided with the Covid-19 panic of March, 2020. Wave 1 of III is a leading diagonal.
If this count is correct, the post-pandemic recovery must be the fifth and final wave of the sequence. Wave V can also be seen as an impulse, marked 1-2-3-4-5. Fifth waves usually exceed the top of the respective third wave, so it makes sense to expect a new all-time high. Instead of buying the breakout, however, we think investors should take defensive measures.
A notable bearish reversal is likely to trigger a deep and long-lasting three-wave correction. Levels around the support of €70 a share should not come as a surprise once the bears gain momentum. The valuation of the company is another reason not to join the bulls here. Airbus is a €104 billion business, which produced roughly 4 billion in free cash flow last year. In other words, the stock is trading at a P/FCF multiple of 26. This is quite expensive, especially if we’re indeed headed for a recession in 2024. When valuation and Elliott Wave analysis both say to stay aside, we stay aside.