Back in February 2021, an article titled “SBA Communications Corp (NASDAQ:) Stock to Reach New High Before Bears Show Up” was published. At that time, SBA Communications (NASDAQ:) was trading at under $274, down 16% from its all-time high of $328. The company is a leading wireless infrastructure provider that leases its towers to carriers such as AT&T and Verizon (NYSE:).
The business model of SBA Communications is recession-proof and it has solid financials. The 5G rollout was anticipated to enhance shareholder value, although the rise in demand might be accompanied by a surge in capital expenditures. As a result, it wasn’t clear what would be left for investors. Instead of trying to decode the unknowns of the fundamental picture, the charts were examined. The Elliott Wave analysis of SBAC stock indicated potential growth, but only in the short term.
Over two years ago, an almost complete five-wave impulse on the weekly chart of SBA Communications was identified. Beginning from the rubble of the Dot-com bubble upwards, waves I, II, III, and IV were marked. Within the structure of the extended wave III, two lower degrees of the trend were also visible. This count indicated that we could expect one last surge in wave V. However, investors should prepare for the natural correction that follows every impulse.
“A bearish reversal between $350 and $400 followed by a decline to the 2020 lows near $200 would make sense“, as written. That prediction turned out to be correct, as evidenced by the following chart.
At the end of 2021, wave V lifted SBAC stock to $391 and change. The future appeared promising and most analysts expected the uptrend to continue. Instead, the bulls abruptly lost their momentum and have yet to recover. The share price fell below $220 earlier this week, trading near the lows of the Covid-19 panic of March 2020. The stock is down 44% from its record, with most of the decrease occurring during 2022, a year in which company revenue actually rose 14%. The decline in free cash flows due to heavy CapEx and high valuation can largely explain this crash. Unfortunately, such explanations after the fact are not very useful to investors. On the other hand, Elliott Wave analysis was able to place us ahead of both the wave V rally and the following plunge.
Looking ahead, SBAC’s valuation doesn’t make it a good investment opportunity. The company trades at a normalized price-to-free cash flow ratio that exceeds 20, which is too costly for a company whose growth rate is expected to slow down this year.