Despite Strong Appreciation Dell Stock Is Not Overvalued
EWM Interactive | Oct 21, 2021 06:41AM ET
Investors who were brave or fortunate enough to buy Dell Technologies (NYSE:DELL) during the coronavirus panic of March 2020 must be very pleased with the results. The stock is up 338% from that bottom at $25.51 and closed at $111.63 yesterday.
For a profitable, growing and financially sound company like Dell, that surge is not a big surprise. The company made over $9B in free cash flow last year and with a market cap of $85B, it is by no means overvalued. Does this make it a good buy at current prices? Can the market present us with better entries soon, if only we wait a while?
Dell ‘s daily chart reveals the stock’s progress from the March 2020 bottom. As visible, the price’s path has taken the shape of a five-wave impulse, labeled 1-2-3-4-5. The five sub-waves of wave 3 can be traced, as well. If this count is correct, Dell is currently rising in its fifth and final wave.
The Elliott Wave theory states that a three-wave correction follows every impulse. In other word, once wave 5 is over, we can expect a retracement to drag the stock back to the wave 4 support level. Assuming a bearish reversal near ~$130, that would be a 30% drop back to $90 or less. The MACD indicator seems to confirm the negative outlook with a bearish divergence between waves 3 and 5. On the other hand, we think that Dell would be a real bargain once the wave cycle is complete.
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