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Cognizant Stock, Down a Third, Can Lose a Third More

Published 06/11/2024, 01:27 AM
CTSH
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Cognizant Technology Solutions (NASDAQ:CTSH) is a $33B professional services company providing consulting, technology, and outsourcing services worldwide. It serves the financial services, health sciences, communications, media, and tech industries by providing customer service, analytics, fraud detection, and more.

Cognizant has a long history as a public company. It held its IPO during the formation of the Dot-com bubble in 1998 and the stock didn’t fall below its go-public price even in the following crash. This makes it one of the very few successful IPOs of the internet mania. The word ‘successful’ might actually be an understatement, because in split-adjusted prices Cognizant stock rose from about 21 cents per share to $93.47 between 1998 and 2022. This is how fortunes are made.

On the other hand, the past few years have been rather disappointing. Currently near $66 a share, the stock is trading near the same levels it did in 2015 and is down by 30% from its 2022 all-time high. In the meantime, revenues are growing slowly, but steadily, net debt is negative, and free cash flow is abundant. In other words, the company is far from doomed. Is the recent weakness a buying opportunity then? Elliott Wave analysis says not yet.Cognizant Stock-Weekly Chart

The weekly chart above shows that Cognizant produced a textbook five-wave impulse between 1998 and 2022. The pattern is labeled I-II-III-IV-V, where two lower degrees of the trend are visible in wave III and wave V is an ending diagonal. According to the Elliott Wave theory, a three-wave correction follows every impulse. And indeed, once wave V ended, the bears took charge and dragged the stock down to $51.33 in Q4, 2022.

2023 saw a choppy recovery, which ended at $80.09 in February 2024, shortly after touching the 61.8% Fibonacci resistance level relative to the preceding selloff. This suggests that we’ve only seen waves A and B of the three-wave retracement. If this count is correct, wave C is now in progress with downside targets around the support of wave IV in the low $40s.

Then, the 5-3 wave cycle would be complete and the resumption of the larger uptrend would make sense. For now, however, the outlook remains quite negative, given that Cognizant can lose another third of its valuation before finding a strong enough support.

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