We last wrote about Danish jewelry maker Pandora A/S (CSE:PNDORA) (OTC:PANDY) five months ago. In mid-September, the stock was hovering around DKK 840 after a phenomenal surge from as low as DKK 180. Besides, the company was also doing good business-wise. The fourth quarter of 2021 was expected to conclude a very strong year for Pandora.
Despite the positive fundamental developments, however, we thought the “stock may need a breather.” Our reason for caution was purely technical. A quick look at the Elliott Wave chart below convinced us most of the rally was behind us already.
Pandora ‘s daily chart revealed an almost complete five-wave impulse pattern. Waves 1-through-4 appeared to be in place already. The fifth and final wave was still missing. Fifth waves typically exceed the end-point of the corresponding third wave. With that in mind, we wrote that “targets above DKK 900 seem reasonable.“
On the other hand, the theory says that every impulse is followed by a correction. This meant that once wave 5 was over, it would make sense to “expect a pullback to roughly DKK 700” in wave (2).
Record 2021 Sales Did Not Translate Into New Records For Pandora Stock
Five months later now, Pandora is arguably in its best shape ever. It has little debt, allowing it to return excess profits to shareholders in the form of buybacks and dividends. Furthermore, with sales of DKK 23.4 billion, 2021 was its best year, indeed. The stock, however, has not been doing so great.
Wave 5 lifted the share price to DKK 950 in November 2021. At a time when Pandora was enjoying the strongest sales in its history, the bears were already taking charge. Earlier this week, the stock fell to DKK 667, down 30% from the top of wave (1).
Their latest annual report helped the bulls recoup some losses and push the stock to a daily close of DKK 741. We don’t think wave (2) is over yet, though. That is because the recent decline looks more like a leading diagonal in wave A than a complete correction.
In other words, we think a temporary recovery in wave B to ~DKK 850 can be expected before wave C drags the stock below DKK 600. With estimated EPS of DKK 60 in 2023, Pandora would be a real bargain then.