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: Elys Game Technology Corp (NASDAQ: ELYS)
Today’s penny stock pick is the online sports betting company, Elys Game Technology Corp (NASDAQ: ELYS).
Elys Game Technology, Corp. provides online and land-based gaming services in Europe and North America. It offers leisure betting products, including lottery, casino gaming, sports betting, online casino games, poker, bingo, virtual sports betting, and horse racing, as well as skilled and interactive games and slots.
The company operates betting platform software services for leisure betting establishments. . Its revenue streams consist of wagering and gaming transaction income from online betting and land-based betting shops located throughout Italy, and service revenue generated from the provision of its Platform services to third-party operators on a B2B basis.
Website: https://elysgame.com/
Latest 10-k report: https://sec.report/Document/0001017386-21-000091/elys_2020dec31-10k.htm
Analyst Consensus: Based on 2 Wall Street analysts offering 12-month price targets for Elys Game Technology in the last 3 months, the company’s average price target is $9.00 and the average rating is ‘Moderate Buy’. H.C. Wainwright analyst has a ‘Buy’ rating and price target of $8.00 for the stock. This week, Maxim Group has initiated coverage for ELYS with a ‘Buy’ rating and a target price of $10.00.
Potential Catalysts / Reasons for the Hype:
- The news of ELYS buying Nevada sports betting operator US Bookmaking. This would allow ELYS to further its U.S. and Canadian sports betting prospects.
- The company launching its new sports betting platform, Elys Gameboard U.S., at the National Indian Gaming Association (NIGA) Trade Show.
- Rumors about a contract with New York to be the only sports betting app in all of its restaurants and hotels.
- Canada considering a new Bill C-13. This bill proposes to legalize single-event sports wagering in Canada.
- Rumors of a possible acquisition of two of the company’s competitors.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Falling Wedge Pattern Breakout: The daily chart shows that the stock was forming a falling wedge pattern for the past several weeks. These are marked as pink color lines. It has typically taken support at the bottom of the wedge before bouncing back. The stock has currently broken out of the falling wedge pattern, indicating possible bullishness.
ELYS – Daily Chart
#2 Bullish ADX and DI: The ADX indicator shows bullishness as the +DI line is above the -DI line, and the ADX line has started to move higher from below the +DI and -DI lines.
#3 Price above MAs: The stock is currently above both 50-day as well as 200-day SMA, indicating that the bulls have currently gained control.
#4 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30. This indicates possible bullishness.
#5 MACD above Signal Line: In the daily chart, the MACD (light blue color) is currently above the MACD signal line (orange color). This indicates a possible bullish setup.
#6 Near Breakout Level of Consolidation Area: The weekly chart shows that the stock had broken out of a consolidation area earlier. This is marked as an orange color rectangle. The stock is currently consolidating near the breakout level of this consolidation area. This is a possible bullish indication.
ELYS – Weekly Chart
#7 Bullish Stoch: The %K line is above the %D line of the stochastic, and is also moving higher from oversold levels, indicating possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for ELYS is above the price of $4.90.
Target Prices: Our target prices are $7.00 and $9.00.
Stop Loss: To limit risk, place a stop loss at $3.60. Note that the stop loss is on a closing basis.
Our target potential upside is 43% to 178%.
For a risk of $1.30, our first target reward is $2.10, and the second target reward is $4.10. This is a nearly 1:2 and 1:3 risk-reward trade.
In other words, this trade offers 2x to 3x more potential upside than downside.
Potential Risks / Red Flags:
- The company has a history of losses. For the year ended December 31, 2020, ELYS had a net loss of $9.9 million and a net loss of $9.3 million and for the year ended December 31, 2019. As of December 31, 2020, and 2019, the company had accumulated deficits of $33.2 million, and $23.2 million, respectively.
ELYS – Annual Report
- ELYS has a history of name changes. The company was formerly known as Newgioco Group, Inc. and changed its name to Elys Game Technology, Corp. in November 2020. The company was formerly known as Empire Global Corp. and changed its name to Newgioco Group, Inc. in July 2016.
- The company was involved in a lawsuit before the name change. The complaint alleged that Mr. Chan did not receive notice of a meeting convened on August 1, 2006, to authorize director action to give effect to the merger between the Company and Excel, and as a result of the proposed merger with Excel, the 36,400,000 million shares of Company common stock which were issued pursuant to the purported merger with Excel were invalid.
- On January 20, 2017, Newgioco Group, Inc. was served with a complaint filed on November 11, 2016, against Empire Global Corp. (later known as Newgioco Group, Inc.) and the chief executive officer connection with a Securities Purchase Agreement by and between the Company and Darling Capital, LLC dated February 29, 2016.
- For the period ended March 31, 2021, the company had a net loss of $0.6 million.
ELYS – Quarterly Report
- If all of the holders of the company’s outstanding securities exercised their outstanding warrants and option, ELYS would be obligated to issue 2,240,274 common shares, further diluting current holders.
- During the past three months, the company’s insiders have sold shares worth $124,350, indicating low insider confidence.
ELYS – Insider Transactions
- Despite being a loss-making company, the company’s executives are receiving good compensation.
ELYS – Executive Compensation
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
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