MongoDB: Bearish Pattern Joins Nosebleed Valuation

MongoDB: Bearish Pattern Joins Nosebleed Valuation


MongoDB (NASDAQ:) is a general purpose database platform developer and provider. The company was founded in 2007, but only came public ten years later – in 2017. During the following four years, the stock has risen from an IPO price of $33 to $515 a share as of last week.

So, it is fair to say that, in general, investors in MongoDB have been generously rewarded. The latest portion of gains came earlier this month, when the company beat expectations and raised its full year guidance. 2021 revenue is anticipated to be around $810 million, resulting in a 37% growth from 2020. The 2022 revenue estimates stand at slightly over a billion dollars.

Unfortunately for investors, this means the company is trading at 32 times its 2022 sales. A P/E ratio cannot be calculated, since MongoDB is still a money-losing operation. Given its $32B market cap, P/S ratio and negative cash flows, it is hardly an exaggeration to say that MDB stock is significantly overvalued.

This Time Can Really be Different for MongoDB Investors. And Not in a Good Way

On the other hand, MongoDB would have been just as overvalued at “only” 20 times sales. What then makes the current moment more dangerous than any other in the past, when paying nosebleed valuations still led to positive results? Our answer is the Elliott Wave chart below.

MongoDB Inc Daily Chart

The daily chart above depicts MongoDB’s entire history as a public entity. The structure of the post-IPO uptrend can easily be seen as a five-wave impulse, labeled (1) through (5). The pattern has been developing within the parallel lines of a channel, whose upper line is now being tested by wave (5).

Whether the price is going to pierce it or not is irrelevant. What matters is that according to the theory, once the fifth wave is over, a major three-wave correction should follow. Furthermore, corrections usually erase the entire fifth wave. In MDB’s case, this means a decline back to the support of the fourth wave near $240.

This is not a shorting recommendation, though. The bulls remain on the wheel for now as wave (5) seems to be still unfolding. But the closer they get to the $600 mark, the more dangerous it would be to join them. If this count is correct, a 50%+ plunge is just around the corner. Watching from a safe distance sounds like a sensible thing to do.

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