Dr. Martens Can Bounce Up From Fibonacci Support
2022.09.30 20:51
Stocks are crashing across the board as an inflation-induced recession is expected to hammer demand for goods and services. And while the 2022 correction is still relatively shallow compared to past downturns, there are many stocks that are already cheap and attractive. One such stock is, in our opinion, Dr. Martens plc, the iconic British boots manufacturer.
The time to invest is precisely when everything looks the bleakest. People who bought stocks in 2009 did a lot better than those who did so in 2007 or 2012, when things looked much better. And those who invested during the Covid panic of March, 2020, made a lot more than those who waited for things to improve.
Chances are good that going into the market before the current crisis is over will lead to better long-term returns, as well. In the meantime, Dr. Martens is down 58% from its 2021 record high and trades at just 11 times this years’ expected earnings. The company’s financials look strong with high profit margins, great returns on equity, little net debt and a high growth rate. In addition, the Elliott Wave chart below suggest the stock might be about to turn a corner.
The hourly chart of Dr. Martens stock reveals that the surge from 175 to 282 pence a share is a five-wave impulse. The pattern is labeled 1-2-3-4-5 in wave (1), where the five sub-waves of wave 3 are also visible. A notable decline to 218 so far has followed, which can be seen as a W-X-Y double zigzag correction in wave (2). The price is now close to the 61.8% Fibonacci level, which is where second waves often end.
Once a correction is over, the preceding trend resumes. If this count is correct, an important bullish reversal for the start of wave (3) up can soon be anticipated. Third waves are often twice as long as first waves, which puts targets above 400 pence a share within the bulls’ reach. This price level also roughly coincides with our fair value estimate for Dr. Martens, given the company’s revenue growth rate.
The global economy looks weak and “winter is coming” in more than one way. That might be good news for Dr. Martens, though, as the company understandably makes the majority of its sales in the cold months. Besides, the British pound is at an all-time low, making a quality company on the London Stock Exchange an even better deal.
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