After soaring 147% to reach an all-time high of $147 per share, Alteryx’s stock price has been on a freefall and is currently trading around $98. Alteryx (AYX) fell victim to the cloud sell-off, which happened as the result of nose bleed valuations popping due to heightened recession fears. Other SAAS companies like Slack, Zoom Video, and Twilio have been declining as well, and so far with no end in sight.

What’s interesting is that the Alteryx stock price declined even as the company did everything right. In other words, when a growth company in a hyper growth sector has elevated valuations, it’s typically priced to perfection. On November 1, the company released its quarterly earnings that historically have exceeded the consensus expectation for perfection.

Revenue came in at $103.4 million, which was up by 65.20% YoY same-quarter while GAAP EPS came in at $0.24. The EPS was $0.15 higher than the consensus estimates. The company also raised its outlook. It expects revenue to be between $389 million to $392 million. This represents an annual growth rate of between 53% 55%. This guidance was higher than the previously guided range of between $370 million and $375 million. It also raised non-GAAP operating income.

To make it more interesting, what we know about Alteryx is that they tend to be conservative on guidance, so a raise of this level should’ve at minimum instilled new buying pressure. Yet, the AYX stock price fell the day of the announcement, and has been treading water ever since. The price action in Alteryx stock price is a lesson in the power of sentiment, and once it shifts, no amount of countervailing news seems to change its course.

A retrace for growth stocks producing triple digit returns is healthy and inevitable. The ultimate question is due to recession fears. In a recession, obviously, the expected growth trajectory for AYX and other cloud based companies will be interrupted, pushing prices down much lower. Sentiment can shift irrationally, and right now the emotional trend is down.

However, one factor I’ve noticed that has led to undue pressure for AYX is that it appears that the market does not have a good understanding of what Alteryx does, which has allowed for price dislocations. I think it’s crucial to understand the space it operates in as well as the advantages it has over competitors, so that when the trend does change, you can hold it with confidence.

Alteryx is a company that offers data science and machine learning services. Their particular niche in the tech ecosystem involves providing the best tools and data to companies that specialize in business intelligence and other related services. In short, their services are complementary to those businesses, not their competition.

Also Read : How to pick long-term stock winners in cloud computing

Despite this, investors compare AYX with companies that are either not its peers or are not in direct competition with. Most Alteryx stock analysts have compared Alteryx to companies like Tableau, which was recently acquired by Salesforce. In fact, Alteryx’s stock price declined when Tableau announced its new product, Tableau Prep, which signals how much the consensus misunderstands AYX.

I believe this is a mistake because, as I’ve mentioned already, Alteryx specializes in data science, machine learning and analytics, whereas Tableau is primarily a business intelligence company that also handles data visualization. In reality, Alteryx does not compete with Tableau. In fact, the two companies are partners. You can see this on the Gartner’s magic quadrant for Business Intelligence solutions here. The company is not there, and this is because Altryx is not in the business of using data to provide visualization purposes.

Contrary to what many people believe, there is a key difference between data science and Cloud Business Intelligence (BI). A good Alteryx stock analysis needs to differentiate between data science and BI. BI is simply a process of analysing past data. Data Science, on the other hand, uses multiple sciences and sources of data to help make future predictions. In short, data science will help automate most of BI tasks in future.

A good example of data science at work was what the New York Times (NYT) reported in 2012. A Target customer went to complain that the company was sending baby and mother care coupons to his home. He later found out that his daughter was pregnant. This is the kind of problem that data science can handle but BI cannot.

Alteryx is more than a business intelligence platform. It is a data science and machine learning platform that provides more useful results to its companies. This is evident on the Gartner quadrant that is shown below, which shows companies that the company competes with.

Source: Alteryx

Alteryx provides companies with information that is more useful than what is provided by other data platforms like Tableau. In short, its capabilities are more in depth and powerful than other options in this field. Designer helps companies profile, prepare, blend, and analyse products and create visual workflows. Server helps to schedule, share, and run analytic processes and applications in a web-based environment. Meanwhile, Connect helps customers discover information assets and share recommendations in companies while Promote helps data scientists build and deploy predictive models in real time. This suite of products helps companies automate and converge various fields of data science.

The cost savings and the usefulness of Alteryx is the main reason why its products cost more and companies are willing to pay for them. The cost per employee for Alteryx suite of products is $5,200 per year or $4,000 per year when on a 3-year contract. Tableau’s Data Prep on the other hand costs $840 per year. This is a significant premium and companies are prepared to pay for it. According to Alteryx, more than 5,600 global companies are using its products.

Therefore, while Alteryx is not a cheap company, the reality is that it is very misunderstood, especially in its role as the true leader in data science and machine learning. This is evident in its ongoing growth. This means that the Alteryx share price would more than likely appreciate if the consensus truly understood the capabilities of the company vs. its true competition as well as the massive runway in front of it.

Also Read : Top Momentum Stocks Affected by Cash Rotation in Q3

Technical Outlook

Just because I believe the company is mispriced based on current understanding and future growth, doesn’t mean it cannot make lower lows. Sentiment is a powerful force, and arguably the tide that drives movement in the market. It is obvious that the sentiment has shifted in AYX as well as most cloud stock (Microsoft excluded).

My primary Elliott Wave count has AYX completing a clear 5-waves up in an extended uptrend. It’s possible that it can recover and extend further, but the weight of evidence is suggesting more downside. In a longer timeframe, I have AYX completing its primary wave 1, shown in the circled red number, and now in the middle of its primary wave-2.

What we know about 2nd waves is that they are typically harsh, and reverse sentiment by retracing to the 50% – 61.8% retrace levels. This is based on averages, so it’s simply a guidepost. I’m not expecting a company as strong as AYX to retrace to these levels, and my own models have it as a long-term buy in the upper region of the green box on the chart, which coincides with q confluence of Fibonacci price clusters.

AYX has completed a sharp move down, touched the 23.6% retrace level and is now in a corrective retracement, which appears to be the B wave in the larger degree wave-2. The evidence for this is that the structure of this retrace up is overlapping, which is not typical of a 5-wave trend change and strongly suggests corrective.

Furthermore, I anchored a volume weighted average price (VWAP) to the all-time high, and this is highlighted in dark blue. This moving average, which factors in the average price along with the amount of shares purchased at each price point, offers a precise understanding of who is in control of the current trend.

As of the writing of this post, the price is trading right at the VWAP, with the RSI in overbought territory. Furthermore, we have a classic negative reversal pattern unfolding in the RSI, where the RSI is making higher highs while the price is making lower highs. I expect this resistance to be difficult for AYX to break, especially in overbought territory, and this could signal the beginning of the final C-wave in the larger degree wave-2.

Any sharp reverse down will confirm that we are in a C-wave correction, and my target zone is in the green box. It’s a confluence of Fibonacci extensions based on the length of the initial A-wave down, and retrace levels based on the length of the larger degree wave 1. I will likely begin layering in buys as it hits this target zone.

I will look to invalidate my current thesis if AYX can: first, break the current VWAP, with the RSI resetting in a bullish posture – i.e., bottoming above the 50 line and heading back up. Secondly, develop an impulsive 5-wave move up as it moves back the $138 price zone with elevated volume. At this point I will look to go long AYX with tight stops to play out any remaining momentum in this stock before the larger degree wave-2 begins.