Public Storage (NYSE:PSA) owns, develops and operates over 3000 self-storage facilities in the US. It is the largest such company in the country and its market cap of $50B makes it one of the biggest REITs, as well.
The pandemic years were a boon for Public Storage after all the money the government printed allowed people to buy stuff they then realized they didn’t need and had to store somewhere else. As a result, sales surged by 17% and 22.4% in 2021 and 2022, respectively. The stock followed with a near-vertical rally to over $421 a share by April, 2022.
Alas, that type of acceleration couldn’t be sustained for very long. Once sales growth began to return to its natural single-digit pace, Public Storage stock came down with it. On the last day of October, 2023, the share price barely held above $233, down almost 45% from its 2022 record. It soon attracted the bargain hunters, who’ve helped the stock recover to over $291 as of this writing.
Is Public Storage really such a bargain, though? The stock trades at 17 times its 2024 estimates for Funds From Operations. In our opinion, that’s a bit pricey for an interest-rate-sensitive mid-single-digit grower with recently softening occupancy levels. Besides, the Elliott Wave chart below speaks volumes.
In the 32 years between 1990 and 2022, Public Storage stock rose from a single digit price to over $420 a share. In the process, it produces a textbook five-wave impulse, marked I-II-III-IV-V. The worst of wave II coincided with the Great Financial Crisis of 2008-9, while wave IV ended with the Covid-19 panic of 2020. Wave III took off shortly after wave II touched the 61.8% Fibonacci support level. While wave IV might look bigger than wave II, it only retraced 50% of the preceding third wave.
If this count is correct, the pandemic surge to $421.76 must be the fifth and final wave of the pattern. According to the theory, a three-wave correction in the other direction was supposed to follow. And indeed, PSA was nearly cut in half over the following 18 months. Unfortunately for the bulls, that 45% decline looks like a single wave, not three.
This tells us that the corrective phase of the Elliott Wave cycle is not over yet. Instead, we can expect waves B up and C down to take place, before the preceding uptrend can finally resume. Correction usually erase most or all of the fifth waves. In our case, this translates into a decline to sub-$200 in wave C. That’s a third lower than where Public Storage stands today.