When we wrote about MongoDB (NASDAQ:MDB) on Sept. 16, 2021, the stock had just exceeded the $500 mark. The share price was up fifteen-fold since the company’s 2017 IPO at $33. Such phenomenal gains can make life very difficult for the skeptics, which is the reason there weren’t many. Fortunately, we’ve never had a problem being part of the minority.
There were two reasons for our pessimism regarding MDB stock. The title of our article—"Bearish Pattern Joins Nosebleed Valuation"—made both of them clear. With no profits, estimated 2022 sales of $1B and a $32B market cap, MongoDB was a money-losing company trading at 32 times forward sales. In our opinion, this meant the stock was in a massive bubble.
Stocks can stay in bubble territory for a long time, though. Company valuation alone has little predictive value. What we relied on instead was our application of the Elliott Wave principle on MongoDB ‘s daily chart. Take a look at it below.
The chart revealed an almost complete five-wave impulse in MDB stock. The pattern was labeled (1)-(2)-(3)-(4)-(5), where the five sub-waves of (1) and (3) were also visible. In addition, there was a flat correction in wave (2) and a simple zigzag in wave (4), both marked a-b-c. This informed us that the fifth and final wave was in progress. According to the theory, a major correction was supposed to occur as soon as it was over.
MongoDB Stock Remains A Risky Gamble Even After Its 54% Crash
Given that wave (5) still didn’t look complete, we thought it could approach the $600 mark before the bears return. The negative phase of the cycle was then likely to erase most, if not all, of wave (5). So, we concluded that "a 50%+ plunge is just around the corner." Six months later now, here is an updated daily chart of MongoDB stock.
Waves 4 and 5 completed the impulsive sequence in wave (5) and thus the entire post-2017 uptrend. The bulls managed to lift the price to $590 a share in mid-November, but not a cent further. For the past five months, it was the bears calling the shots. On Mar. 8, 2022, MDB fell as low as $272.50, down 53.8% from its record in less than five months.
Last week, the market closed with MongoDB at $316.50. Unfortunately for the bulls, we still don’t think this is a low enough price. The company is expected to be only barely profitable two years from now. Analysts’ estimates hover around $1.5B in revenue for the fiscal 2024. This gives us a forward price-to-sales ratio higher than 14 for a business that has yet to prove its money-making abilities. This makes MDB more of a gamble than an investment. And the odds don’t seem to be in the bulls’ favor.