Teledyne Technologies (NYSE:TDY) is an electronic and communication products provider for wireless and satellite systems. It went public in late-1999, but unlike most other companies that listed during the Dot-com bubble, Teledyne has been an astonishing success. The stock started trading at $8.44 over two decades ago. In April, 2022, it reached as high as $494 a share for a gain of over 5750%. Any investor smart and patient enough to hold Teledyne since its IPO would’ve multiplied their money by roughly 58.
The last six months, on the other hand, have been a disappointment. TDY closed just over $408 a share yesterday, down 17.4% from its all-time high. Given the undoubtedly high quality of the company, we bet that many see this dip as a buying opportunity. We have two concerns, though, the first one being Teledyne ‘s valuation. The stock trades at a P/E of 26, which we don’t think can be justified by the company’s growth rate. EPS is expected to grow at 10% a year at best going forward.
The other reason for our skepticism, however, has nothing to do with fundamental analysis.
The weekly price chart of Teledyne stock reveals its entire path from under $8.50 to the vicinity of $500. As visible, it’s taken the shape of a textbook five-wave impulse. The pattern is labeled I-II-III-IV-V, where the five sub-waves of wave III are marked (1)-(2)-(3)-(4)-(5). Wave II corresponds to the 2008-9 Financial Crisis, while wave IV coincided with the 2020 Covid-19 panic.
If this count is correct, the surge from $195 to $494 must be the fifth and final wave of the sequence. According to the theory, it is time for a three-wave correction in the opposite direction. Corrections usually erase most or all of the fifth wave’s gains. In Teledyne ‘s case, this translates into a decline back to the $250 – $200 support area. That would be a 39% to 51% drop from the current level. It would bring the P/E down 10-15, more in-line with the company’s growth rate. So, instead of buying the dip, we’d rather watch from afar.