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: Pixelworks, Inc. (NASDAQ: PXLW)
Today’s penny stock pick is Pixelworks, Inc. (NASDAQ: PXLW).
Pixelworks provides high-performance and power-efficient visual processing solutions. It develops and markets semiconductor and software solutions that enable consistently high-quality, authentic viewing experiences in a wide variety of applications from cinema to smartphones. The company’s primary target markets include Mobile (smartphone, gaming, and tablet), Home Entertainment (TV, personal video recorder, over-the-air, and projector), Content (creation, remastering, and delivery), and Business & Education (projector).
As of December 31, 2020, it had an intellectual property portfolio of 338 patents related to the visual display of digital image data.
Website: www.pixelworks.com
Latest 10-k report: https://sec.report/Document/0001040161-21-000005/
Analyst Consensus: According to TipRanks Analytics, 2 Wall Street analysts are offering 12-month price targets for Pixelworks in the last 3 months. The company’s average price target is $5.75, which represents a 29.21% change from the last price of $4.45.
Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company receiving buy ratings from analysts.
Recent Analyst Ratings | Source: TipRanks.com
- The stock currently trading at its third-highest volume in 10 years.
- iQOO brand of Vivo announcing high-end flagship iQOO 8 Series with Pixelworks Technology. Recently, Pixelworks’ i6 processor had powered the new Lenovo Legion Phone Duel 2.
- The company reporting 50% sequential and YOY growth in revenue in Q2 2021. The growth was attributed to string projector business recovery and continued growth in mobile revenue. The company also secured a co-development agreement of around $10.6 million with a Japanese OEM client to develop advanced SoC for an anticipated next-gen product family for the 3LCD Projector market.
- Rumors of a merger buyout.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Consolidation Area Breakout: The daily chart shows that the stock was trading within a consolidation area for the past several weeks. This is marked in the daily chart as a purple color rectangle. The stock had recently broken out of this consolidation area with a high volume. Once a stock breaks out from a consolidation area, it usually moves higher.
PXLW – Daily Chart
#2 Bullish ADX and DI: The ADX indicator shows bullishness as the +DI line and the ADX line are above the -DI line, and the ADX line is currently moving higher from below the +DI and -DI lines.
#3 Price above MAs: The stock is currently above its 50-day as well as 200-day SMA, indicating that the bulls are now in control.
#4 Bullish Stoch: The %K line of the stochastic is currently above the %D line and is also moving higher from oversold levels. This is a possible bullish sign.
#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 IH&S Pattern: The weekly chart shows that the stock has been forming an Inverted Head and Shoulders (IH&S) pattern. This IH&S pattern is marked in the chart in pink color. An IH&S pattern is a strong bullish pattern. Once the stock breaks out of this pattern, it could move higher in the short term.
PXLW – Weekly Chart
#7 Bullish MACD: In the weekly, the MACD (light blue color) is currently above the MACD signal line (orange color). This indicates 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 PXLW is above the price of $4.70.
Target Prices: Our target prices are $6.00 and $7.00
Stop Loss: To limit risk, place a stop loss at $3.90. Note that the stop loss is on a closing basis.
Our target potential upside is 28% to 49%.
For a risk of $0.80, our first target reward is $1.30, and the second target reward is $2.30. 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 significant losses. The company’s losses nearly tripled year-over-year, from $9.08 million in 2019 to $26.53 million in 2020.
PXLW – Annual Report – Consolidated Statement Of Operations
- iQOO’s new high-end Flagship iQOO 8 Series with Pixelworks Technology is a high-end phone. Historically, such phones do not have enough sales volume, translating to lower profits.
- Although the company had better QoQ performance in Q2 2021, they still had reported a net loss of $4.3 million.
PXLW – Q2 Report – Consolidated Statement Of Operations
- In spite of reporting significant losses, the company executives are drawing good compensation. In fact, the total compensation for President and CEO increased year-over-year.
PXLW – Executive Compensation
- Through June 30, 2021, the company had sold an aggregate of 1,747,466 shares of its common stock through private placement. The company notes in its Q2 report that in the future, it may authorize and issue more shares to fund its business. Such “at the market” equity offering program or additional private placements could have the effect of depressing the market price of the stock and/or stock dilution.
- The company had come close to non-compliance with Nasdaq Marketplace Rules like maintaining a minimum price of $1.00 per share, having at least 400 total shareholders, having an aggregate market value of listed securities above $50.0 million, etc. Any future non-compliance could cause the company’s common stock to be delisted from the Nasdaq Global Market.
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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