Exceptional margins and returns on assets and equity make the surge in Aspen Technology (NASDAQ:AZPN) shares easy to understand. AZPN stock exceeded $162 a share last week, up 122% from last year’s low at $73.
On the other hand, the software company is expected to earn $5 a share in this fiscal year. This means the stock is currently trading at a price-to-earnings ratio of 31.
Valuation doesn’t matter until it does.
Is this a good time to join AZPN bulls?
The weekly chart above puts the uptrend from the dot-com bubble rubble in Elliott Wave context. AZPN stock seems on the verge of completing a five-wave impulse which it started in October 2002. The pattern is labeled (1)-(2)-(3)-(4)-(5), where wave (1) is a leading diagonal and wave (3) is the extended one.
Wave (4) occurred during the coronavirus panic of 2020, meaning the following recovery must be wave (5). According to the theory, a three-wave correction follows every impulse. Wave (4) erased the entire wave 5 of (3). The same way, the anticipated retracement has the potential to erase the entire wave (5).
If this analysis is correct, we can expect a drop of more than 50% in AZPN stock. The bearish RSI divergence between waves (3) and (5) also indicates the bulls are running out of steam. After almost two decades in an uptrend, the stock appears too expensive for its own good now.