The allure of penny stocks lies in their potential to deliver massive gains in a short period. However, in exchange for that opportunity, most penny stocks carry tremendous risk. They can be extremely volatile and are susceptible to “pump and dump” schemes and fraud.
Unlike regular stocks, the financial condition of most penny stock companies can be extremely difficult to analyze, as the majority of such stocks are traded on over-the-counter (OTC) exchanges, which are typically less transparent and less regulated than the major exchanges. In fact, in the penny stock space, it’s often easier to spot warning signs and red flags than it is to identify a sound investment.
Although the potential reward may make it worthwhile, choosing the right penny stock is a daunting task.
Nevertheless, we’ll do our best to identify short-term trade opportunities in this exciting space.
With this in mind, we’re starting a new series called “Penny Stock of the Day”. These ideas are geared for traders with a high risk appetite.
Our Penny Stock of the Day is chosen by screening for stocks under $5 and then applying technical analysis on the shortlisted set of penny stocks showing unusual volume. When making these trades, please make sure to pay vigilant attention to pricing moves and have a strict stop loss in place to avoid significant losses.
Penny Stock of the Day: Liquid Media Group Ltd (NASDAQ: YVR)
Today’s penny stock pick is the media and entertainment company, Liquid Media Group Ltd (NASDAQ: YVR).
Liquid Media Group Ltd is a Canadian entertainment company with a portfolio of content IP (Intellectual Property) spanning creative industries. Originating in Vancouver’s media and entertainment supercluster, the company’s mission is to empower storytellers to develop, produce and distribute across channels and platforms.
Liquid Media Group helps content creators carry out their visions from ideation to execution. The company seeks to be an all-in-one package for creators across the media, entertainment, and gaming industries. Furthermore, Liquid provides data analytics, financing, production services, and monetization assistance, among many other more specific services for in-between steps.
Website: www.liquidmediagroup.co
Latest 10-k [20-F] report: https://sec.report/Document/0001273511-21-000078/
Potential Catalysts / Reasons for the Hype:
- The company announcing a partnership with Currencyworks to create the first of its kind multi-token IP platform, making it the first legit non-fungible token (NFT) play. A non-fungible token is a unit of data on a digital ledger called a blockchain, where each NFT can represent a unique digital item, and thus they are not interchangeable. The Liquid Media Token Platform (LMTP) offers four IP pillars: Creation, Use/Subscription, Financing, and Licensing/Protection.
- News about Liquid Media expanding its business model by acquiring a number of media companies like Indieflix and Filmocracy.
- The high short volume of YVR stock incentivizing a short squeeze among retail traders. It may have the potential to be one of the new meme stocks, as retail investors always look for stocks with low market cap, low volume, and high short interest as their next short squeeze.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications:
#1 Falling Wedge Pattern Breakout: As you can see from the daily chart, the stock was forming a falling wedge pattern for the past several days. It had typically taken support at the bottom of the wedge before bouncing back. This pattern is marked in purple color. The stock has currently broken out of the falling wedge pattern with very high volumes. A breakout from the wedge indicates that the stock may move higher.
Daily Chart – YVR
#2 MACD above Signal Line: The daily chart shows that the MACD line (blue color) is currently above the MACD signal line (orange color). This is a possible bullish setup.
#3 Price above MAs: The price is currently above the short-term moving average of 50-day SMA as well as the longer-term moving average of 200-day SMA. This usually implies a possible bullish bias for the stock.
#4 Bullish ADX and DI: The ADX indicator shows bullishness because (+DI) is greater than (-DI), ADX and (+DI) are above (-DI), and ADX is moving up from below (-DI) and (+DI).
#5 Consolidation Area: The weekly chart shows that the stock has currently formed a consolidation area, and is trading within those levels. This is marked as a pink color rectangle. A breakout from a consolidation area would indicate that the stock would move higher. The stock is also trading above its 50-week SMA, indicating that the bulls are currently gaining control.
Weekly Chart – YVR
#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, and it is also moving higher from oversold levels. All these indicate possible bullishness.
Recommended Trade (based on the charts):
Buy Levels: If you want to get in on this trade, you can purchase half the intended quantity of shares of YVR above its most recent close, at around $2.25. The rest of the shares can be purchased if the stock breaks out of the consolidation area marked on the weekly chart. This translates to a price of around $3.90.
Target Prices: Our target prices are $3.90 and $5.00.
Stop Loss: To limit risk, place a stop loss at $1.70, which is roughly 25% below current prices. Note that the stop loss is on a closing basis.
Our target potential upside is 73% to 122%. For a risk of $0.55, our first target reward is $1.65, and the second target reward is $2.75. This is a nearly 1:3 and 1:5 risk-reward trade.
In other words, this trade offers 3x to 5x more potential upside than downside.
Potential Risks / Red Flags:
- The stock had retreated about 13% after a rally from retail traders on Thursday. This proves that the recent price surge was driven by retail traders.
- The company has a history of operating losses and negative cash flows, as per its annual report. For the fiscal years ended November 30, 2020, 2019, and 2018, the company’s operating losses stood at $8,260,489, $7,311,968 and $2,380,524, respectively.
Annual Report – YVR
- In the past, the company has received written notices from Nasdaq for failing to meet its continued listing requirements, including the failure to hold an annual meeting of shareholders within 12 months of the end of the fiscal year ended November 30, 2018. In its latest annual report, the company notes this as one of the risks related to its Common Share.
YVR – Nasdaq listing requirement
- The company was involved in litigation with the former chief executive officer and a director of its wholly-owned subsidiary, Liquid Canada, who filed suit against the Company in the US District Court for the Southern District of New York, alleging breach of contract and gender discrimination and seeking compensatory and punitive damages.
- Leading Brands, Inc. (NASDAQ: LBIX) and Liquid Media Group Ltd. had closed business combination by plan of arrangement under the Business Corporations Act (British Columbia) in August 2018. Prior to that, a subsidiary of LBIX had become involved in a legal dispute with former employees of its Edmonton bottling plant following the disposition of the Plant in 2016. As part of the business combination, the company had to assume liability.
- The company had started generating revenue in the fiscal year 2018, due to the acquisition of its majority interest in Majesco Entertainment Company. Majesco has published hundreds of video games, including more than 17 titles since 2010 via digital networks such as Xbox Live Arcade, PlayStation Network, and Steam, and for mobile devices and online platforms. However, as of November 30, 2020, YVR no longer holds any interests in Majesco. This means that the company may continue to incur operating losses and negative cash flows.
- The company has a working capital deficit. As of November 30, 2020, the Company has assets totaling CAD$385,416 and liabilities totalling CAD$317,679.
- The company’s shareholders have been diluted in the past year. To finance its operations, the company had raised funds through the issuance of common shares and securities convertible into common shares. Sales or issuances of substantial numbers of common shares in the future would adversely affect the market price of the common shares, and investors may suffer dilution of their investment.
- On February 18, 2021, Waterproof commenced a legal action against YVR in which it alleges that YVR misrepresented facts to Waterproof that led it to enter the Amended and Restated Shareholder Agreement (ARSA) with the company. Waterproof claims that it has the right to purchase Waterproof shareholdings from YVR at a fair market value as of May 17, 2019 in accordance with a calculation included in the ARSA.
- YSR has a track record of lawsuits. In January 2020, Jesse Sutton, the director of Majesco, filed a lawsuit in the Supreme Court of British Columbia against the company alleging various unpaid claims. On August 31, 2020, YVR settled the claim by paying an undisclosed amount to Sutton.
- The latest earnings show a Q2 net loss of C$2,060,074.
Q2 – YVR
- The bottomline remains that the company has bleak financials and business uncertainty, making it a high-risk trade.
As you can see, today’s featured penny stock offers big upside potential… but it also comes with a number of risks and red flags. As always, when dealing with penny stocks, we advise caution before entering into such high-risk ventures. Remember to think before you trade… understand the risks… and if you decide to trade, stick to your stop-losses!
Happy Trading!
Trades of the Day Research Team