Gartner (NYSE:IT) is a research and advisory firm, which, through its Research, Consulting and Conferences segments, helps business leaders make better-informed decisions. The company was founded in 1979 and went public in 1993. Currently, in the vicinity of $450, the share price is not far from its all-time high of $487 and gives Gartner a market cap of almost $35B.
The stock is one of the best performers in the market since the COVID-19 pandemic struck. It is up by over 480% from its March 2020, bottom at $77 a share. In investing, however, the price paid can make all the difference between a good and a bad investment. With the benefit of hindsight, Gartner was obviously a good pick below $80 four years ago. The question is, is it a good pick now near $450?
The weekly chart above reveals the stock’s entire progress since the aftermath of the Dot-com bubble in the early 2000s. We see that the COVID-19 selloff fits in the position of wave ‘c’ of a simple a-b-c zigzag correction in wave (2). It followed a complete five-wave impulse in wave (1), marked 1-2-3-4-5. Wave (3) was a fast sharp surge, caused by a combination of FOMO, stimulus money, and rising company profits at Gartner.
The bulls temporarily stepped aside in wave (4) in the first half of 2022, before coming back with a vengeance in wave (5). If this count is correct, Gartner stock is on the verge of completing an impulse pattern, which has been in progress for over two decades. Wave 5 of (5) can still exceed the $500 mark, but instead of chasing it, investors should probably start taking profits.
There are two main reasons for our pessimism. The first one is that according to the Elliott Wave theory, a three-wave correction follows every impulse. Corrections usually erase the entire fifth wave. Here, the bears can drag the price back down to the support of wave (4) near $250 for a 50% decline. This may sound too bearish until you consider the second reason for our pessimism, namely that Gartner is trading at a forward P/E of 39.
That’s too expensive for a company expected to grow earnings and revenue at a high-single to low-double-digit rate per year. Instead of buying near all-time highs, we’d rather watch from afar until the valuation risk subsides.