We recently started a series called “Penny Stock of the Day”. These ideas are geared for traders with an extremely 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: Pioneer Power Solutions, Inc. (NASDAQ: PPSI)
Today’s penny stock pick is the power, distribution, and specialty transformer manufacturing company, Pioneer Power Solutions, Inc. (NASDAQ: PPSI).
Pioneer Power Solutions, Inc. manufactures, sells, and services specialty electrical transmission, distribution, and on-site power generation equipment. The company operates in two segments, Transmission & Distribution Solutions, and Critical Power Solutions.
The Transmission & Distribution Solutions segment designs, develops, and manufactures low and medium voltage electric power distribution panel boards, low voltage switchgears, and switchboards. The Critical Power Solutions segment provides aftermarket field-services to ensure smooth and uninterrupted power to operations during times of emergency. It serves utility, industrial, commercial, and backup power market.
Website: www.pioneerpowersolutions.com
Latest 10-k report: https://sec.report/Document/0001387131-21-004036/
Analyst Consensus: Not covered by analysts
Potential Catalysts / Reasons for the Hype:
- The news of the company joining Russel Microcap® Index.
- The declaration of a one-time special cash dividend of $0.12 per common share.
- The news of PPSI’s partner CleanSpark, Inc. extending and expanding a contract manufacturing agreement through to the end of 2023.
- The launch of a new integrated power systems solution, PowerBloc1, to address customer needs in the rapidly growing electric vehicle charging infrastructure market.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Symmetrical Triangle Pattern Breakout: The daily chart shows that the stock has currently broken out of a Symmetrical Triangle pattern. A symmetrical triangle is a continuation pattern and is characterized by two converging trendlines connecting a series of sequential peaks and troughs. This is marked on the daily chart as orange color lines. Once a stock breaks out from a symmetrical triangle pattern, it usually moves higher.
PPSI – 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 MA: The stock is currently above the 50-day SMA, indicating that the bulls have currently gained control.
#4 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.
#5 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30. This indicates possible bullishness.
#6 Fibonacci Support: The weekly chart shows that the stock had bounced back higher after taking support at the 23.6% Fibonacci level. The stock is also trading above its 50-week as well as 200-week SMA. All these are possible bullish signs.
PPSI – Weekly Chart
#7 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, indicating possible bullishness.
#8 Bullish RSI: The RSI is above 50 and moving higher in the weekly chart. This is a possible bullish setup.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for PPSI is above the price of $4.80.
Target Prices: Our target prices are $6.00 and $8.00.
Stop Loss: To limit risk, place a stop loss at $4.10. Note that the stop loss is on a closing basis.
Our target potential upside is 25% to 67%.
For a risk of $0.70, our first target reward is $1.20, and the second target reward is $3.20. This is a nearly 1:2 and 1:5 risk-reward trade.
In other words, this trade offers 2x to 5x more potential upside than downside.
Potential Risks / Red Flags:
- PPSI has been a loss-making company. The company had reported a net loss from continuing operations of $3.0 million for the year ended December 31, 2020. During the year ended December 31, 2019, the net loss from continuing operations was $12.0 million.
PPSI – Annual Report – 2020 Operating Results
- As per the management discussion dated Mar. 30, 2021, the board has approved issuing and selling additional common stocks for up to $25 million in Oct. 2020. This could cause a dilution of nearly 40%.
- On January 11, 2016, Myers Power Products, Inc. filed suit with the Superior Court of the State of California, County of Los Angeles, against PPSI’s wholly owned subsidiary PCEP, and two PCEP employees who were former employees of Myers Power Products, Inc., alleging, that they wrongly used and retained confidential business information of Myers Power Products, Inc. for the benefit of PPSI and PCEP, in breach of their confidentiality agreement. The company had to enter into a settlement and pay Myers Power Products, Inc.
- The company executives are drawing a sizable paycheck, even though PPSI has been a loss-making company.
PPSI – Executive Compensation
- The company is selling its liquid filled and dry type transformer businesses to Mill Point Capital, a middle-market private equity firm, for $65.5 million in cash and notes.
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
READ BEFORE TRADING PENNY STOCKS: The allure of penny stocks lies in their potential to deliver massive gains in a short period of time. 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. Nevertheless, we do our best to identify short-term trade opportunities in this exciting space because we know some of our readers are looking for high-risk, high-reward ideas. We just urge you to make sure you fully understand the risks before making any of these trades.
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