Snap (NYSE:SNAP) is famous for deleting all messages sent over the platform immediately after they’ve been viewed by the recipient. And while this feature is appreciated by the company’s core demographic, investors hardly like it when their SNAP stock gains do the same.
Unfortunately, that is exactly what has been happening since late-September. SNAP stock is down over 50% from its all-time high of $83.34 reached four month ago. What made investors pay 32 times sales for a losing company in the first place is beyond our ability to understand. What matters is the Elliott Wave principle‘s ability to help us predict both the surge to $80 and the following crash months in advance. Take a look.
The chart above was published on Apr. 20, 2021. As visible, we thought a five-wave impulse pattern was going to form. Wave 5 was supposed to exceed the top of wave 3, so $80 a share seemed like a reasonable bullish target. With the stock at $60 back then, this mean a ~33% gain can be expected.
Months Ahead of the Crash in SNAP Stock
On the other hand, the theory states that a three-wave correction follows every impulse. Instead of celebrating the new record, investors would be better off taking profits. The anticipated retracement was “likely to erase all of wave 5 and drag Snap stock back down to $45 or less.” Here is how the chart has changed during the nine months since we made that prediction.
It was a choppy and overlapping recovery, but the bulls eventually made it to the $80 mark. As expected, however, they quickly made way for the bears to take over. Of course, the following crash can be attributed to Snap ‘s Q3 2021 revenue miss. In our opinion, though, the stage was already set for a significant decline. This is just another reminder of Elliott Wave analysis ‘s ability to put investors ahead of the news.
Now, Snap ‘s valuation has tumbled from over $120 billion to just above $60 billion. We still don’t think that is cheap enough. In fact, paying 11 times forward sales for a company that is struggling to show a profit is a very risky bet in our book. Pure valuation tells us to watch from a safe distance as SNAP stock keeps falling.